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TMI Blog2017 (5) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... offering interest income from Kisan Vikas Patra on cash basis. In view of this we direct the assessing officer to delete the addition of ₹ 2 38007/– as well as interest from core molding of ₹ 9 0377/– amounting in all to ₹ 366618/- on account of interest income chargeable to tax under income from other sources. - ITA No. 2900/Del/2014 - - - Dated:- 10-4-2017 - SHRI H.S.SIDHU, JUDICIAL MEMBER, AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Sh. Ved Jain, Adv Sh. Ashish Chadha, CA For The Revenue : Sr. FR Meena, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This appeal is preferred by the assessee against the order of the ld CIT (A)-XXVIII, New Delhi dated 21.02.2014 for the Assessment Year 2008-09. 2. The assessee has raised the following grounds of appeal:- 1 On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned CIT{A) has erred both on facts and in law in passing the order without giving assessee a proper and adequate opportunity of be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi for the full year even though the house was purchased by the Appellant on 13.08.2007 and was thereafter under renovation etc. till March 2008. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the contention of the Appellant that the Annual Letting Value as per the Municipal Corporation of Delhi being ₹ 1,13,4007- the AO was not justified in ignoring the same and estimating the Annual Letting Value higher than that. 9(i) Without prejudice to the above and without admitting in any manner whatsoever, and in the alternative, even if the whole transaction were to be held to be a sham, no adverse view can be taken in the hands of the assessee. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition made by the AO in the hands of the assessee despite giving a finding that the transaction entered into was for the benefit and as perquisites of Mr. Ravinder Dhariwal being CEO of M/s Bennett, Coleman Co. Ltd. 10. That the Learned Commissioner of Income Tax (Appeals) has erred in directing the entire principal amount of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e about transaction was confirmed by the tenant wide letter dated 15/10/2010. The tenant further gives this property to Sri Ravi Dhariwal who is an employee of the tenant and the husband of the assessee. The Ld. assessing officer was of the view that overall motive of the transaction is to pass on benefit to Sri Ravi that he will husband of the assessee by parking interest refund of ₹ 5 crore and also at the same time not increasing any taxable income in the hands of the assessee. Therefore the Ld. assessing officer after obtaining the explanation of the assessee were proud an amount of addition of ₹ 5 191380/ being 10.75% of ₹ 4 829 1907/ being the amount given by the tenant directly to the persons or entities who worked for the renovation of the house property. The said sum of ₹ 5 191380/ was taken as an annual letting Value of the house property and there from a sum of ₹ 1 557414/ was deducted as standard rate of 30% under section 24 (A) and consequently an addition of ₹ 3 653966/ was made to the annual legible value of the house. Further, the assessee has invested in Kisan Vikas Patra and obtained loan from bank against those Kisan Vikas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenant had given the aforesaid security deposit on which no interest was payable by the assessee/landlord to the tenant. In the subsequent assessment year, another property, viz., 87, Adhichini, New Delhi was also rented out to the same tenant and interest free security money of ₹ 2.20 crores was taken in respect of this tenancy. In this manner, total security deposit became available to the assessee at ₹ 10.78 crores. The Assessing Officer came to the conclusion that interest on interest free security deposit was an important fact for consideration while determining the fair rent within the meaning of section 23(1)(a) of the Act. He, therefore, added a sum of ₹ 30.41 lakhs as notional interest, which would have been earned by the assessee on the aforesaid security deposit kept with the assessee by the tenant and included the same in the income of the assessee for the purpose of taxation. 2. The assessee filed an appeal thereagainst before the CIT (Appeals). CIT(A) allowed the appeal and deleted the aforesaid addition. It was now the turn of revenue to challenge the order of the CIT(A), which thereby preferred appeal before the Income-tax Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, be reduced by a sum equal to the aggregate of- (i)In respect of any residential unit, whose annual value as so determined does not exceed six hundred rupees, the amount of such annual value; (ii)In respect of any residential unit whose annual value as so determined exceeds six hundred rupees, an amount of six hundred rupees; (b)In the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 1961, and completed after the 31st day of March, 1970, but before the 1st day of April, 1978, for a period of five years from the date of completion of the building, be reduced by a sum equal to aggregate of- (i)In respect of any residential unit whose annual value as so determined does not exceed one thousand two hundred rupees, the amount of such annual value; (ii)In respect of any residential unit whose annual value as so determined exceeds one thousand two hundred rupees, an amount of one thousand two hundred rupees; (c)In the case of a building comprising one or more residential units, the erection of which is completed after the 31st day of March, 1978 but before the 1st day of April, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the owner, the annual value of such house or part of the house shall be taken to be nil ; (ii) Which is let during any part or parts of the previous year, that part of the annual value (annual value being determined in the same manner as if the property had been let) which is proportionate to the period during which the property is in the occupation of the owner for the purposes of his own residence, or, as the case may be, where such property is let out in parts, that portion of the annual value appropriate to any part which was occupied by the owner for his own residence, which is proportionate to the period during which such part is wholly occupied by him for his own residence shall be deducted in determining the annual value. Explanation.-The deduction under this sub-clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was used for the residence of the owner precedes or follows the period during which it is let; (b) More than one house in the occupation of the owner for the purposes of his own residence, the provisions of clause (a) shall apply only in respect of one of such houses, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r‟ as appearing in section 23(1)(a) would mean that only standard rent or actual rent, whichever is higher has to be adopted for the purpose of section 23(a). In the present case, the annual rent was higher than the standard rent and, therefore, no addition could be made. The CIT(A) went by the rateable value of the property as fixed by the MCD, viz., ₹ 2,02,240 with effect from 1-4-1994. On this basis, he opined that the actual rent was more than the said rateable value and therefore, as per section 23(1)(b), the actual rent would be the income from house property and there could not have been any further additions. 7. The Tribunal while accepting the aforesaid approach of CIT(A), has held that the annual value cannot exceed the standard rent and the fair rent under the Rent Control Act and where the standard rent is not fixed, the rateable value of the property as fixed by the Municipal Corporation would be a good guide. According to the Tribunal, this was the view taken by various Courts and number of judgments of the Calcutta, Bombay and Madras High Courts, apart from some decisions of different Benches of the Tribunal are relied upon. The Tribunal denounced t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pected to receive. If the annual rent actually received is more than that, the said sum shall be treated as income from house property. On the other hand, if it is lesser than the amount at which the property can reasonably be expected to let from year to year, then the amount determination as per clause (a) shall be the income from house property. The legal position as put forward by Mr. Sabharwal is correct and there cannot be any quarrel about the same. The entire question is as to how to determine the fair rent‟ when the property is already let out, particularly when the assessee, as landlord has received a huge amount of security deposit from the tenant, which gives an impression that actual rent received is suppressed. 3. As noted above, the Assessing Officer, in these circumstances, took into consideration the notional interest which interest free security would fetch and added that to the actual rent received to arrive at fair rent‟ and consequently the annual letting value. 4. The CIT(A), on the other hand, preferred to adopt rateable value of the property fixed by the Municipal Corporation even when that was done way back in the year 1996. In a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spelt out in Paras 17 and 18 of the order which need to be reproduced : 17. Insofar as the present case is concerned, the Delhi Rent Control Act is admittedly not applicable as the rent was more than ₹ 3,500 per month. No doubt, the annual value determined by the MCD is less than the actual rent. However, the moot question is that when it is found that such rateable value fixed by the Municipal authorities may not represent the correct value, would that still be taken as a yardstick for the purpose of section 23(1)(a) of the Act. The agreed monthly rent is ₹ 90,000 which comes to ₹ 10.8 lakhs per year. In addition, the assessee, as landlord, was given a security deposit of ₹ 8.58 crores, which was interest free. The security deposit is more than and twices the capital value at the property on the annual rent by the assessee. Giving of such a huge security deposit, which does not carry any interest, would not appeal to the reason when the rent is a meagre amount of ₹ 90,000 per month. 18. Section 23(1)(a) of the Act states that annual value of the property shall be deemed to be the same for which the property might reasonably be accepted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these remarks for the reason that it is an admitted position if the property is covered by the Delhi Rent Control Act, then the standard rent under the said Act could be treated as fair rent‟ in view of various judgments. The counsel for the parties conceded to this position and therefore, we need not elaborate on this, moreso when it does not even arise for consideration. 8. With this, we revert back to the moot question, viz., how to determine the fair rent‟ of the property and then to find out as to whether actual rent received is less or more than the fair rent‟ so that higher of two is taken as annual letting value under section 23(1)(b ) of the Act. For this purpose, we first discuss the validity of approach taken by the Assessing Officer, viz., whether it is permissible to add notional interest of interest free security deposit and add the same to the actual rent received for arriving at annual letting value. Even the Division Bench while making reference did not countenance the aforesaid formula adopted by the Assessing Officer as is clear from Para 12 of the reference order wherein it is observed as under: 12. In this backdrop, the importa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned with business income and is distinct and different from income from house property. It talks of the value of any benefit on perquisite, whether convertible into money or not arising from the business or the exercise of a profession . It has been explained by this Court in Ravinder Singh that section 28(iv) can be invoked only where the benefit or perquisite is other than cash and that the term benefit or amenity or perquisite cannot relate to cash payments. In the instant case, the Assessing Officer has determined the monetary value of the benefit stated to have accrued to the assessed by adding a sum that constituted 18 per cent simple interest on the deposit. On the strength of Ravinder Singh, it must be held that this rules out the application of section 28(iv ) of the Act. 9. Section 23(1)(a) is relevant for determining the income from house property and concerns determination of the annual letting value of such property. That provision talks of the sum for which the property might reasonably be expected to let from year to year . This contemplates the possible rent that the property might fetch and not certainly the interest in fixed deposit that may be placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 23(1)(b) and it is for this reason that the word receivable must be read in the context of the word received in section 23(1)(b). In the light of the above interpretation, notional interest cannot form part of the actual rent as contemplated by section 23(1)(b ) of the Act. We once again repeat that whether such notional interest could form part of the fair rent under section 23(1)(a) is expressly left open. [Emphasis supplied] 12. It is, thus, manifest that various Courts have held a consistent view that notional interest cannot form part of actual rent. Hence, there is no justification to take a different view that what has been stated in Asian Hotels Ltd.‟s case (supra). 13. The next question would be as to whether the annual letting value fixed by the Municipal Authorities under the Delhi Municipal Authority Act can be the basis of adopting annual letting value for the purposes of section 23 of the Act. This question was answered in affirmative by the Calcutta High Court in Satya Co. Ltd.‟s case (supra) on the ground that the provisions contained in the Delhi Municipal Corporation Act for fixing annual letting value is pari materia with sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l value. Accordingly, there can be no scope or justification whatsoever for making any addition for any notional interest for determining the annual value. Whatever benefit or advantage which is derived from the deposits - whether by way of saving of interest or of earning interest or making profits by investing such deposit - the same would be reflected in computing the income of the assessee under other heads. In our view there is no scope for making any addition on account of so-called notional interest on the deposit made by the tenant, since there is no provision to this effect in section 22 or 23 of the Income-tax Act, 1961. 14. In fact, this is the view taken even by the Supreme Court in the case of Mrs. Shiela Kaushish v. CIT [1981] 131 ITR 4352 on account of similarity of the provisions under the municipal enactments and section 23 of the Act. 15. It is on this basis that in the present case, the CIT(A) gave primacy to the rateable value of the property fixed by the Municipal Corporation of Delhi videits assessment order dated 31-12-1996 and on this basis, opined that the actual rent was more than the said rateable value and therefore, as per secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, then it is the duty of the Assessing Officer to determine the standard rent as per the provisions of rent control enactment, (vi)The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent. 19. We may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precise observations of the Court in the said judgment are as under: At the cost of repetition it may be mentioned that under section 23(1)(a), the Assessing Officer has to decide the fair rent of the property. While deciding the fair rent, various factors could be taken into account. In such cases various methods like the contractors method could be taken into account. If on comparison of the fair rent with the actual rent received, the Assessing Officer finds that the actual rent received is more than the fair rent determinable as above, then the actual rent shall constitute the annual value under section 23(1)(b) of the Act. Now, applying the above test to the facts of this case, we find a categorical finding of fact recorded by the Tribunal that the actual rent received by the assessee was more than the fair rent. Under the above circumstances, in view of the said finding of fact, we do not see any reason to interfere. [Emphasis supplied] 23. Subject to the aforesaid observations, insofar as the present appeals are concerned, we find that the manner in which the Assessing Officer determined annual letting value was not correct. Finding no merits in these appeals, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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