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TMI Blog2014 (4) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... hich read as under: "1. The Ld CIT (A) erred in confirming the addition of notional interest of Rs. 23,42,532/- on security deposit while computing income from house property under section 23(1)(a) of the Act. 2. The Ld CIT (A) erred in not appreciating that the appellant received Rs. 1.32 Crs per year as compensation for letting out the premises vis-à-vis security deposit of Rs. 2 Crs as on 31st March, 2005, which cannot be said to be 'nominal' by any standards. 3. The Ld CIT (A) erred in placing reliance on the judgment of the Delhi High Court in the case of CIT vs. Moni Kumar Subba (ITA No.499 of 2008) without appreciating that the facts in appellant's case are different. 4. Without prejudice to the above, the Ld CIT (A) erred in not appreciating the fact that the security deposit received by the appellant has been invested in its business, the profits derived from the business have been offered for tax and accordingly, the appellant has already paid tax due on the earnings from the security deposit and addition on account of notional interest would amount on double taxation. 5. Without prejudice to the above, the Ld CIT (A) erred in confirming the incorrect computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rental income of Rs. 1,33,34,558/-, disclosed in the return. Aggrieved with the decision of the AO, assessee filed an appeal before the first appellate authority. 6. During the proceedings before the first appellate authority, it is the submission of the assessee that the rent received by the appellant at Rs. 1.32 Crs per year could not be said to be nominal by any standards. It was further submitted that under clause (b) of section 23(1) of the Act, only the actual rent received or receivable could be taken into consideration and not any notional advantage. Similarly, under clause (a) of section 23(1), there is no provision for adding the notional interest on security deposit for the purpose of determining the annual value. In support of his claim that the notional interest on interest free deposit should not be considered for determining the ALV, the assessee relied upon various decisions i.e., (i) CIT vs. Satya Company Ltd 75 Taxman 193 (Cal); (ii) CIT vs. Asian Hotels Ltd 168 Taxman 59 (Del); (iii) CIT vs. Hemaraj Mahavir Prasad Ltd 279 ITR 522 (Cal); (iv) CIT vs. J.K. Investors (Bombay) Ltd 248 ITR 723 (Bom) and also the decision of the Tribunal in the case of trivoli In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23(1)(a) of the Act. To that extent we agree with the contention of the learned Counsel of the assessee. However, we make it clear that rateable value is not binding on the Assessing Officer. If the Assessing Officer can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/evidence placed on record. This view is fortified by the decision of Patna High Court in the case of Kashi Prasad Kataruka v. CIT [1975] 101 ITR 810. 18. The above discussion leads to the following conclusions : "(i)ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances, (ii)An inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness, (iii)Actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration, (iv)Such ALV, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property, (v)If standard rent has not been fixed by the Rent Controller, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to the another order of the Tribunal in the case of Ganga Trading Co. Ltd vs. ACIT [2012] 28 taxmann.com 78 (Mum.) for identical proposition. Further, a copy of the judgment in the case of CIT vs. Sastha Pharma Laborities (P) Ltd [2013] 34 taxmann.com 167 (Karnataka) was filed by the Ld Counsel for similar ratios. In response to the query from the Bench on the reasonableness of the rent of Rs. 11 lakhs per month, Ld Counsel strongly relied on the rental agreement and mentioned that the fact of receiving the security deposit was also taken into account while fixing the rent of Rs. 11 lakhs per month. He also mentioned that the part of the premises was occupied by the lessor. 10. On the other hand, Ld DR heavily relied on the orders of the AO and the CIT (A). Bringing our attention to para 4.3 of the rental agreement, ld DR mentioned that while fixing the rentals, the fact of having interest free security deposit of Rs. 4.4 Crs was also taken into account thereby implicating the extraneous circumstances specified in the Full Bench decision of the Hon'ble High Court of Delhi. Further, he argued stating that the AO quantified the notional interest @ 8% on the security deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of 8% without examining the facts of the present case and without giving the findings, it is not appropriate to say that that the security deposit has earned interest income from the bank. At the same time, we cannot appreciate the assessee's failure to file the basis showing the justification for arriving at the monthly rent of Rs. 11 lakhs for the premises. In that sense of the matter, certain basic things are missing and it is required to remand the matter to the files of the AO. By inference, the assessee rejected the applicability of municipal ratable values which happened to be substantially lower in this case i.e., the municipal ratable value is Rs. 33,44,595/- and rent offered by the assessee is 1.32 Crs per year. Therefore, the issue for decision before us is whether the said sum of Rs. 1.32 Crs is a reasonable ALV as offered by the assessee or Rs. 1.32 Crs, increased by the notional interest on the reducing balances of the security deposit calculated the notional interest rate of 8%. Lower authorities have not provided any discussion on whether the said sum of Rs. 1.32 Crs includes portion attributable to the interest segment on the security deposit. Even before us, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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