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TMI Blog2017 (6) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... the property in the earlier years for ₹ 96 lacs cannot applied in the case before us. In view of above, we find no infirmity in the order of ld. CIT(A). Hence the ground of appeal of the Revenue is dismissed. - ITA No. 2186-2187/Kol /2014, C.O. No. 03-04/Kol /2015 - - - Dated:- 2-6-2017 - Shri N. V. Vasudevan, Judicial Member And Shri Waseem Ahmed, Accountant Member By Assessee : Shri S.M. Surana Advocate Shri P.R. Kothari, FCA By Revenue : Shri Pinaki Mukherjee, JCIT, SR-DR ORDER Per Bench :- These two appeals by the Revenue and Cross Objection (CO) filed by the assessee are directed against the different orders of Commissioner of Income Tax (Appeals)-XX, Kolkata of even dated i.e. 10.09.2014. Assessments were framed by ITO Ward-36(1), Kolkata u/s 143(3)/147) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his orders dated 17.03.2014 for assessment years 2010-11 2011-12 respectively. Shri Pinaki Mukherjee, Ld. Departmental Representative represented on behalf of Revenue and Shri S.M. Surana Shri P.R. Kothari, Ld. Advocate appeared on behalf of assessee. 2. Both the appeals and CO(s) of assessee are heard together and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that he was holding the post of parttime director in the company as well as the post of employee to look after the export business of POL. The assessee has received no salary from the company, therefore the perquisites value u/s. 17(2) r.w.s. Rule 3 of the Rules becomes nil. 7. Similarly, the provision of Sec. 28(iv) of the Act cannot be attracted in relation to the rent free accommodation provided by POL. It is because these exists employee and employer relationship between the assessee and the POL. Moreover, assessee was not engaged in any business activity as well as holding any professional qualification as envisaged under the provisions of Section 28(iv) of the Act. 8. POL has given its flat on rental basis for financial years 2001-02 2002-03 to its 100% holding company wherein rent of Rs. 96 lakh was received only for those particular years. There was no rental income in the earlier years and subsequent year. Therefore, the amount of Rs. 96 lakh cannot be valued as the perquisites in the hands of the assessee. The rent was received by the POL from its holding company for ₹ 96 lacs for the said years only and there can be several reasons/factors for the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sq.fts. + 20% of the prescribed letting rate towards car parking + 10% of the letting rate being 11th floor = ₹ 13,74,081/- (in round figure it is ₹ 14,00,000/-) and accordingly the balance addition is directed to be deleted. However, so far taxing the rental value is concerned, the AO was justified to invoke section 28(iv) of the IT Act because the sequence of events clearly suggest that the idea of apportioning as part time employee was afterthought to avoid tax liability. In this regard reliance is placed on the judgment of Sumati Dayal Vs. CIT reported in 214 ITR 801 (SC) in which the Hon'ble court has discussed the issue of human probability and surrounding circumstances. It has been held that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. In the present case, the surrounding circumstances and facts clearly show that the appellant adopted a colourable device for taking the rent free accommodation under rule 3 of the IT Rules for calculating valuation of the rent free accommodation which is otherwise not applicable in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding 25 lakhs as per 2001 census; (ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census; (iii) 7.5% of salary in other areas, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee. As the non-furnished rent free accommodation provided to the assessee is owned by M/s POL, therefore 15% of the salary shall be taken as perquisites in the hands of the assessee. However we find that admittedly the assessee is not withdrawing any salary from the POL then in such situation it cannot be determined as per rule 3 of income tax rule. Thus it is clear that the provisions of section 17(2) are very much applicable to the instant facts of the case but the same cannot be determined under rule 3 of IT rules for the reasons as discussed above. Similarly, the provisions of Sec. 28(iv) of the Act are attracted if the benefit of perquisites is arising to the assessee from the business or exercise of the profession. As there is no dispute that there was existing employees and employer relationship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be taxed under the provision of Sec. 28(iv) of the Act on the ground that the condition as laid down in the said Section has not been met to the instant rent free accommodation. Now, the residual section where the perquisites value can be determined for the Sec. 23(1) of the Act for the purpose of taxation of rent free accommodation and relevant provision of Sec. 23(1) reads as under:- [Annual value how determined. 23.(1) For the purposes of section 22, the annual value of Anaya 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 10.2 Now the 2nd issue before us arises whether the value shall be determined as per clause (a) or clause (b) of section 23(1) of the Act. From the reading of the above provision, it is clear that that the clause (b) is applicable where the property is actually let out. In the case before us the property is not let out then applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court was as to what should be the basis of determining the annual value for the purpose of levy of property tax. The expression Annual Value as defined in the Delhi Municipal Corporation Act, 1957 and Punjab Municipal Act, 1911 was Gross annual rent at which such house of building may reasonably be expected to let from year to year . The Hon'ble Supreme Court held that the annual value is always rent realizable by landlord and that actual rent is only an indicator what the landlord might reasonably expect to get from a hypothetical tenant. The Honourable Court further held that where tenancy is subject to rent control legislation, Standard rent would be a proper measure and in any event, annual value cannot exceed such standard rent. In the case of Mrs. Sheila Kaushish Vs. ClT, 131ITR 435 (Sc), the question arose in the context of provisions of section 23 of the LT. Act. The Hon'ble Supreme Court applying the decision of Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor (supra) observed as follows :- Now this was a definition given on the interpretation of the definition of Annual value in the Delhi Municipal Corporation Act, 1957, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Dewan Daulat Rai Kapoor (supra) and Mrs. Sheila Kaushish (supra) held as follows :- Therefore, in case where the actual rent received is higher than that for which the property might reasonably be expected to let from year to year in respect of an income accruing subsequent to the amendment different considerations might arise. But, we are not concerned with such situation in the instant case. Therefore, in view of that position and the municipal law and in view of the decision of the Supreme Court, it appears to us that the income from house property must be computed on the basis of the sum which might reasonably be expected to let from year to year and with the annual municipal value provided such a value is not above the standard rent receivable and that would be the safest guide for this purpose and the rent actually received would not be of any relevance . 21. The Court in the aforesaid decision also relied on the provisions of section 154 of the Bombay Municipal Corporation Act, wherein the manner of determination of rateable value has been laid down. The said provisions also speak of annual rent for which, the property might reasonably be expected to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the annual value. We are not making reference to those decisions, since, in our opinion the aforesaid pronouncement of Hon'ble Bombay High Court considers the decisions of Hon'ble Calcutta High Court which in turn has considered the law laid down by the Hon'ble Apex Court on the issue. It is clear from the aforesaid exposition of law that charge u/s. 22 is not on the market rent; but is on the annual value and in the case of property which is not let out, municipal value would be a proper yardstick for determining the annual value. If the property is subject to rent control laws and the fair rent determined in accordance with such law is less than the municipal valuation then only that can be substituted by the municipal value. The decision in the case of Mrs. Sheila Kaushish (supra) mentions standard rent under the Rent Control Act as one of the yardsticks. We also find from the decision of Hon'ble Calcutta High Court in the case of Smt. Prabhabati Bansali (supra) that standard rent, if it does not exceed the municipal valuation alone can be adopted in place of municipal valuation. 23. As far as decisions relied upon by the learned D.R. in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest free security deposit was taken by the owner. 25. For the reasons given above, we hold that the annual value (also referred to as municipal valuation/ rateable value) adopted by the municipal authorities in respect of the property at ₹ 27,50,835 should be the determining factor for applying the provisions of Sec.23(1)(a) of the Act. Since the rent received by the Assessee was more than the sum for which the property might reasonably be expected to let from year to year, the actual rent received should be the annual value of the property u/s.23(1)(b) of the Act. Notional interest on interest free security deposit/rent received in advance should not be added to the same in view of the decision of the Hon'ble Bombay High Court in the case of J.K.lnvestors (Bombay) Ltd. (supra). We hold accordingly. The appeal of the revenue is dismissed. From the above, it is amply clear that the perquisites of rent free accommodation can be determined only in pursuance of the provisions of section 23(1)(a) of the Act which requires to determine the same as per the guidelines of Municipal Corporation in the above facts circumstances. Thus, the value of rent free accommodat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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