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TMI Blog2014 (4) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... (6) TMI 9 - BOMBAY High Court] - the direction by the CIT(A) to the AO is in conformity with the law - the field is clear for the AO and there are no fetters on him - his mandate under law being to assess the fair rent, and for which all the information and material that is relevant could be employed. Claim of proportionate relief on account of vacancy – Held that:- It is also trite that hardship in a particular case is no reason for not observing the clear mandate of the provision – Relying upon Vivek Jain vs. Asst. CIT [2011 (1) TMI 897 - Andhra Pradesh High Court] - section 23(1)(c) is an incident of the condition of actual letting – thus, the matter is remitted back to the AO for determination of the fair rent, which may or may not exceed the monthly rent. Deduction for municipal taxes – Held that:- The municipal tax/es paid by the assessee, as disallowed, is for the period relating to the previous years relevant to A.Ys. 2002-03 to 2007-08, i.e., prior to the current year - the order of the CIT(A) is confirmed - The tax levied as contemplated u/s. 23 is only as per law - The deduction qua the tax paid shall stand to be withdrawn (i.e., to the extent of the deduction all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided the same thus: Issue No. 1 - Determination of annual value (AV) '2.3 ............The Assessing Officer is thus directed to determine the fair rent or sum for which the property might reasonably be expected to be let out from year to year after considering all factors by considering rent of similarly situated properties in the neighborhood where no interest free deposits have been taken. The higher of the fair rent rent actually received be taken as the income from house property. The Assessing Officer will also allow vacancy allowance for the period when the property remained vacant.' Issue No. 2 - Deduction for municipal taxes '3.3 The assessment order, submissions made for the appellant and materials on record have been considered. Proviso to s.23 states that 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 accordingly 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. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of his business, under the head of 'income from house property'. Section 23 lays down the manner in which the annual value is to be computed. Section 23, in its relevant part, reads as under: 'Annual value how determined. 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 to in clause (a), the amount so received or receivable; or (c) where the property or any part 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... municipal authorities, etc. The rent implication of the interest-free deposit cannot be either denied or discounted. The two are interrelated; the movement in one being opposite to the other, so that the two are inversely related. The assessee in this regard states of the deposit as having no rent implication in-as-much as the same is given only to cover the risk incident to the parting of the possession. The said argument is, to our mind, misconceived. This is as the said risk could equally be covered by stipulating a provision toward interest in its respect at the going rate, which, it is to be appreciated, is only toward the opportunity or the time cost of funds, while the deposit would be refundable only subject to the terms and conditions of the agreement. Rather, compliance of the same could also be made a precondition for the payment of interest. The interest-free deposits are specifically suited or preferable in case of cash rich tenants/licensees, as the banks, who have, besides liquidity, access to low cost funds. Then, again, there are considerations such as saving on the property tax; higher yield, as where the funds are invested in tax-exempt instruments, which become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference of interest @ of 9% as a part of rent received (i.e., u/s. 23(1)(b)) in the case of CIT vs. Streelite Electric Corporation [2011] 336 ITR 348 (P H), admitting, with reference to the decision in the case of J. K. Investors (Bombay) Ltd. (supra), that notional interest on interest-free security deposit could not ordinarily be considered as a part of the actual rent, but limited to cases of the same being adopted to circumvent the real rent. Subsequently, the apex court, admitting the special leave petition in CIT vs. Transmarine Corporation (SC) SLP CC 8999/09 in CA no. 5470/2011 dated 15.07.2011, held that disproportionate deposit (i.e., in relation to the monthly rent) on interest-free basis would require further investigation along the lines, inter alia, as to whether the rent has been under-stated; whether the rent has been brought down by the deposit; whether the arrangement was entered into with a view to evade taxes, etc., remitting the matter back to the file of the hon'ble high court. The decision in the case of Streelite Electric Corporation (supra) is thus in conformity with the law as explained by the apex court. Our concern in the instant case is limited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in cases such as Ramesh Chand vs. ITO [2009] 29 SOT 570 (Agra) and Smt. Indra S. Jain vs. ITO [2012] 52 SOT 270 (Mum) has clarified that section 23(1)(c) is an incident of the condition of actual letting, which is present in the instant case. The matter stands restored by the ld. CIT(A) to the file of the A.O. to determine the fair rent, which may or may not exceed the monthly rent of Rs.9,00,600/- in the present case. Subject, therefore, to the same (i.e., the fair rent), being lower than the said contracted rate, we endorse the finding of the ld. CIT(A). This answers ground nos. (i), (ii) and (iii) (partly) of the appeal (also refer para 4.3 of this order). Issue # 2(supra) 5. We next come to the Revenue's ground nos. (iii) (partly) (iv); ground (v) being only general in nature, warranting no adjudication. The municipal tax/es paid by the assessee, as disallowed, is admittedly for the period relating to the previous years relevant to A.Ys. 2002-03 to 2007-08, i.e., prior to the current year. The same however is of no consequence in view of the proviso to section 23. The law, as would be evident, is patently clear and, therefore, the fact of it pertaining to an earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of the hon'ble court. The same could presumably be on the ground of unreasonableness or also for the reason of the property being restrained for being let; the property under reference being subject matter of a dispute in the case of 'Duraiya Mansur Petiwala and Anr. vs. Shabbir Hussain T. Petiwala and Others' (in Suit No. 803 of 2003). Pursuant to an understanding arrived at between the parties, the hon'ble court vide its order dated 24.04.2007 allowed the parties liberty to give the premises in their possession on leave and license basis. The amount paid/deposited being in dispute, the same though paid is indeterminate. The tax levied as contemplated u/s. 23 is only as per law. The deduction qua the tax paid shall stand to be withdrawn (i.e., to the extent of the deduction allowed in its respect) on any part of it being directed to be refunded to the assessee by the hon'ble court. We say so as only the amount as finally held as not refundable is which can be said to have been paid by way of tax; the balance being only in the nature of an advance payment or deposit. We decide accordingly. 6. In the result, the Revenue's appeal is disposed of in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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