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TMI Blog2011 (1) TMI 1492X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Jindal Iron Steel Co. ltd., 7500 sq.ft to M/s Jindal Vijaynagar Steel ltd and 5000 sq. ft to Jindal Thermal Power Co. Ltd as per the lease agreements and collected security deposits of ₹ 34,00,00,000, ₹ 30,00,00,000 and ₹ 14,00,00,000, respectively. These deposits are interest free deposits. The AO also further noticed that as per the terms of the lease agreement, the lessee shall pay all the rates, cess and taxes, etc. The lessee will pay ₹ 1 per sq. ft per month to the assessee company which comes to ₹ 21,200 per month. The AO also noticed that the assessee company has invested the interest free deposit of ₹ 78,00,00,000 in equity shares of group company. The assessee company, was, therefore, asked to explain as to why interest on such security deposit should not be taken as indirect rent for the purposes of income from house property. In response to the AO s query, the assessee has filed explanation vide letter dated 29.11.2007. The Assessing Officer rejected the explanation of the assessee and worked out notional interest of ₹ 14,04,00,000 computed @ 18% per annum on the deposits of ₹ 78,00,00,000 and determined the annual le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received. While explaining the aforesaid amendment, CBDT in Circular 204 dated 24.7.1976 in paragraph 9 has stated as follows :- Hitherto, the annual value of house property, chargeable to income tax under the head income from house property was deemed to be the sum for which the property might reasonably be expected to let from year to year. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub section (1) of section 23 has been amended to provide that the where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property . 18. From the aforesaid Circular, it is clear that the law prior to introduction of section 23(1)(b) was that annual value was equal to Municipal Valuation of the property. The above circular gives an indication as to how the expression the sum for which, the property might reasonably be expected to let from year to year used in section 23(1)(a) hast to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant. This interpretation which we are placing on the language of sub-section (1) of Sec.23 of the IT Act,1961, may be regarded as having received legislative approval, for, we find that Sec.6 of the Taxation Laws (Amendment) Act, 1975 sub-section (1) has been amended and it has now been made clear by the introduction of clause(b) in that sub-section that where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum for which the property might reasonably be expected to let from year to year, the amount so received or receivable shall be deemed to the annual value of the property. The newly added cl.(b) clearly postulates that the sum for which a building might reasonably be expected to let from year to year may be less than the actual amount received or receivable by the landlord from the tenant . 20. Hon'ble Calcutta High Court in the case of CIT Vs. Prabhabati Bansali, 141 ITR 419 had to deal with a case of a property in Mumbai, where the dispute was with regard to determination of its annual va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the annual value of the property under section 23(1) afresh with reference to its rateable value as determined by the Municipal Corporation. The question was answered in the affirmative and the court held that the income from house property had to be computed on the basis of the sum for which the property might reasonably be let from year to year and the annual municipal value. Following the Calcutta High Court decision (1983) 141 ITR 419, which we think, has taken the right view, we answer the questions in the negative and against the department with a direction that the annual value of different properties will now be determined by the Tribunal in accordance with the directions set out above. No order as to costs . 22. The Hon ble Bombay High Court in the case of Smitaben N. Ambani Vs. CWT 323 ITR 104 (Bom) in the context of Rule 1BB to the Wealth Tax Rules, which uses the same 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, held that rateable value as determined by the Municipal authorities shall be the yardstick. The Learned counsel for the assessee relied on several other judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contrary cannot be followed. Further In para-13 of its decision in the case of Makrupa Chemicals, the Tribunal has very categorically held that if ratable value is less than the standard rent (where the property is subject to rent control laws) then only standard rent has to be taken. In coming to the above conclusion the Tribunal has followed the decision of the Hon ble Supreme Court in the case of Dewan Daulat Rai kapoor (supra). Thus the decision in the case of Baker Technical Services (P) Ltd. (supra) being contrary to the decision of the Hon ble Bombay High court in our view cannot be followed. 24. The decision relied upon by the learned D.R. in the case of Fizz Drinks Ltd.(supra), are distinguishable on facts. The facts in that case were that the agreed rent was Re.1/- per month and interest free security deposit of ₹ 1,62,36,000/- was taken by the owner. It was this factor which weighed in the mind of the Tribunal as is evident from the observations in para-8 of its order where they have held that any fair judicial administration would not allow such things to happen. The decision in the case of Tivoli Investment Trading Co. (P) Ltd. (supra) is again distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X
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