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TMI Blog2011 (9) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... ting value of the property lower than he market value. 2. On the facts and in circumstances of the case and in law, the CIT(A) erred in deleting the addition of notional interest without appreciating that the annual letting value of the property of the assessee is to be determined in accordance with the provisions of section 23(1)(a) and the question of taxing the notional income u/s. 23(1)(a) has been kept open for consideration by the Hon ble High Court in the case of CIT vs. J.K. Investors (Bombay) Ltd. (2000) 112 Taxman 107(Mum). 2. The Assessee is a company. It is engaged in the business of letting out properties and dealing in real estate. The Assessee owned shop No.1(Part) and Shop.No.2 admeasuring 370 Sq. ft. Carpet Area and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... influenced, the letting out value of the premises. He worked out notional interest on such interest free security deposit at 12% P.a. on the interest free security deposit of ₹ 59.48 lacs which was a sum of ₹ 7,13,760/-. He added the said sum of ₹ 7,13,760/- to the actual rent received of ₹ 3,74,724 and determined the annual value of the property at ₹ 10,88,484/-. The determination of annual value as above was done by the AO by making a reference to the provisions of Sec.23(1)(a) of the Income Tax Act, 1961 (the Act). The Hon ble Bombay High Court in the case of CIT Vs. J.K. Investors (Bombay) Ltd. 248 ITR 723 (Bom) has taken the view that while computing annual value u/s.23(1)(b) notional interest on interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts before the Full Bench of the Hon ble Delhi High Court were the assessee let out house property for which she received a rent of ₹ 6.95 lakhs and an interest-free security deposit of ₹ 10.78 crores. The property was not subject to the Rent Control Act. The AO held that in computing the annual rent u/s 23(1)(a), the notional interest on the security deposit (Rs. 30.41 lakhs) had to be added. This was reversed by the CIT (A) Tribunal. On appeal by the department, the matter was referred to a Full Bench. The Full bench held: (i) S. 23 (1)(a) requires determination of the fair rent being the sum for which the property might reasonably be expected to let from year to year . The AO has to make an inquiry as to what would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression the sum for which the property might be reasonably expected to let from year to year as is found in Sec.23(1)(a) of the Act. It has been held in the aforesaid cases that rateable value as determined by the Municipal authorities shall be the yardstick to determine the sum for which the property might be reasonably expected to let from year to year. 5. In the present case, the actual rent received is much more than the Municipal valuation and therefore the provisions of Sec.23(1)(b) of the Act would be applicable. The AO however determined annual value by adding to the actual rent received notional rent on interest free security deposit and arrived at annual value u/s.23(1)(a) of the Act. Such a course is not permissible and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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