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TMI Blog2018 (4) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... viz. A.Y 2010-11 and had assailed the same before the Tribunal. Deliberated on the facts and are unable to comprehend that now when the similar issue involving identical facts had been adjudicated by the CIT(A) in favour of the assessee, therefore, how a contrary view could have been taken by the A.O, despite remaining well convesant of the aforesaid state of affairs. As persuade ourselves to accept the view taken by the A.O for disallowing the claim of the assessee u/s 24(b), therein leading to a consequential addition of ₹ 33,10,656/- in its hands. We had deliberated on the observations of the CIT(A) and are persuaded to be in agreement with the view taken by him. Notional interest in respect of interest free refundable deposits received by the assessee from its tenants - Held that:- In the case of CIT Vs. J.K. Investors (Bom) Ltd. (2000 (6) TMI 9 - BOMBAY High Court) as observed that as the actual rent received or receivable by the assessee in respect of the aforesaid property was found to be in excess of the sum for which the property might reasonably be expected to have been let out from year to year, and the ALV had been determined under Sec. 23(1)(b), therefore, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out appreciating the fact that the tenants has deducted tax at source on the payment u/s. 194I treating the payment as rent. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deduction of interest of ₹ 33,86,952/- without appreciating the fact that the assessee has taken loan for the working capital requirements and not for the purpose of acquiring/constructing the property in question. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of ₹ 57,20,603/- relying on the judgement in the case of CIT vs. J.K. investors (Bombay) Ltd. dealing with the provisions of Sec.23(1 )(b) and not 23(1)(a) of the Act. 4. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 5. The appellant prays that the order of the CIT(A) on the above ground be set-asideous be set aside and that of the assessing officer be restored. 2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of buying of properties and leasing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head Income from House Property is solely meant for regular repairs and maintenance to keep the assets functioning. Such expenses are always revenue in nature. However, Sinking Fund is created to meet capital expenditure for replacing an asset and not to meet any routine running and maintenance expenses. Therefore, any collection of Sinking Fund on behalf of ITPL does not form part of income of Altitus. Further, the provision of section 23(1) of the Income Tax Act, 1961 defines the annual value of a rented property as higher of reasonable expected rent of the property and rent actually received or receivable after excluding unrealized rent and then deducting loss due to vacancy. The rental charged to the tenant is as per commercial negotiation. The terms of the agreements are clear that the tenants are under an obligation to bear the sinking fund in addition to the rentals paid by them. In various cases it has been held by the judicial Authorities that until there is enough evidence that the rental received is low compared to the prevailing market rent for similar premises in the same locality, nothing can be added to the annual value of the property. Few cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) that as the sinking fund was a fund collected to undertake carrying out of repairs of the building and was usually spent for the upkeep of the property, therefore, the same could not be considered as part of the rental income. The assessee in support of its aforesaid contention relied on the order of the coordinate bench of the Tribunal, viz. ITAT, Mumbai Bench, J , Mumbai in the case of Mukesh D. Ambani Vs. ACIT, Special Circle 18(1), Mumbai, (7 SOT 521) (Mum). The CIT(A) after deliberating on the contentions of the assessee was persuaded to be in agreement with same. The CIT(A) being of the view that as the issue as to whether the amount collected for sinking fund for maintenance or other works cannot form a part of the annual value of the property and hence be brought to tax as the income of the assessee under the head of income for house property was deliberated upon and adjudicated in favour of the assessee by the jurisdictional Tribunal in the case of Mukesh D. Ambani Vs. ACIT (2006) 7 SOT 521 (Mum), therefore, following the same decided the issue in favour of the assessee and deleted the addition of ₹ 33,86,952/- made by the A.O on the said count. 4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowal of the amount purchase of any property is u/s. 24(b) of the I. T. Act. Sec. 24(b) of the I. T. Act reads as-under: Sec. 24(b) - Income chargeable under the head Income from house property shall be computed after making the following deductions namely: (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. In Sec. 24(b) it is clearly stated that where the property has been acquired, constructed, repaired, renewed or reconstructed with the borrowed capital, any interest payable on such capital is allowable as deduction. Here in the appellant's., case also as its only activity is purchasing the property and leasing them on rent, the sec.24(b) allows for the deduction if property is acquired from borrowed capital. There is no evidence in the A.O's order that this property was not acquired from the capital borrowed from TCG Urban Infrastructure. Neither any cogent material was brought on the record by the A.O. to show that appellant is carrying any other activity and utilizing these funds for the working capital purposes. Hence appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -5(2), Mumbai (2012) 28 taxman.com 78 (Mum). (ii) ACIT, 19(3) Vs. Monisha R. Jaysingh (2012) 21 taxman.com 9 (Mum). (iii) DCIT-10(1), Mumbai Vs. Reclamation Realty India (P) Ltd. (2011) 9 taxman 35 (Mum). (iv) J.K. Investor Ltd. Vs. DCIT (2000) 74 ITD 274 (Mum). , had concluded that if the income was offered by the assessee under Sec. 23(1)(b) then the notional interest on the interest free deposits received from the lessees cannot be added to the income of the assessee. The CIT(A) observed that the order passed by the Tribunal in the case of J.K. Investor Ltd. (supra) was confirmed by the Hon ble High Court of Bombay in the case of J.K. Investors Ltd. (2001) 248 ITR 723 (Bom) and the appeal of the revenue was dismissed. The CIT(A) further observed that the order of the ITAT, Delhi in the case of Fizz Drinks (supra) was distinguishable on facts and thus would have no bearing on the adjudication of the issue involved in the case before him. The CIT(A) distinguishing the facts involved in the aforementioned case, observed that in the said case the property was let out by the assessee at a rent of Re. 1 per month and interest free security deposits of ₹ 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. A.R that as the issue involved was squarely covered in favour of the assessee, therefore, no infirmity did emerge from order of the CIT(A), who by following the aforesaid judicial pronouncements had decided the issue in favour of the assessee and deleted the addition so made by the A.O. 9. The ld. A.R further adverting to the deletion of the addition of ₹ 33,10,656/- (wrongly mentioned in the ground of appeal as ₹ 33,86,952/-) in respect of interest on borrowed capital claimed as deduction under Sec. 24(b) of the Act by the assessee, submitted that the CIT(A) observing that a similar disallowance of interest expenditure involving the same facts was deleted by his predecessor in the assessees own case for A.Y 2010-11, therefore, finding no reason to take a different view had rightly deleted the aforesaid addition so made by the A.O in the hands of the assessee. 10. The ld. A.R adverted to the addition of ₹ 57,20,603/- made by the A.O towards notional interest in respect of the interest free refundable deposits received by the assessee from its tenants, which on appeal was deleted by the CIT(A). It was submitted by the ld. A.R that the CIT(A) after delibe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of their respective flats in a building known as Usha Kiran, let out on leave and licence basis to M/s Aveshesh Mercantile Ltd. by Smt. Kokila D. Ambani and other appellant namely Shri Mukesh D. Ambani has let out his flat to M/s. Averan Textiles Ltd. on a monthly rent of ₹ 5,000 per month. So the rent was declared at ₹ 60,000 per month. The dispute is in respect of the following payments made by the said tenants to the said co-operative housing Society, reproduced by Assessing Officer as follows: Sr. No. Nature of payment Amount (Rs.) 1. Contribution for plumbing, rectification, painting and structural repairs 3,868/- 2. Pest treatment charges 5,144/- 3. Repair fund 18,100/- 4. Special contribution to structural repair as per resolution passed to special general body meeting held on 15.03.1990 60,000/- 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of Property Annual Value (i) Usha Khan Rs.2,89,996/- Less: Deduction: Under Sec. 24(1)(i) of the IT Act: Rs.57,999/- For repairs = 1/5th of ALV Income from house property as determined: Rs.2,31,997/- Less: Income from house property as returned: Rs.48,000/- Difference by which returned income needs to be increased: Rs.1,83,997/- (Figures as per file of Shri Mukesh D. Ambani) 3. Being aggrieved the issue was carried before the first appellate authority and after reiterating the facts as referred hereinabove ld. CIT(A) has concluded that the reimbursement incurred by the licensee on behalf of the licensor were nothing but indirect rent paid by the licensee to the licensor. According to him as well for the purpose of calculating any rent received or receivable as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty might reasonably be expected to let from year to year or as per clause (b) where the property is let and the actual rent received or receivable by the owner is in excess of the sum referred in clause (a) the amount so received or receivable. Explanation 1 has defined annual rent means the actual rent received or receivable by the owner in respect of such year. In terms f the above clauses of I.T. Act we have examined the factual aspect and have found that there is no finding by the Assessing Officer about any sum for which property might reasonably be expected to let from year to year. The only finding thus left is in respect of the actual rent received by the owner. On one hand it is abundantly clear that the terms of the agreement were explicit and unambiguous that the licensor was under an obligation to maintain the said premises and bear the cost of maintenance. It is also not doubted that the licensee was under obligation to reimburse the proportionate share in respect of the monthly outgoings in respect of maintenance charges etc. On the other hand, it is not clear why the said amount was treated by the Assessing Officer as rent receivable in the hands of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby allowed. In the result, both the appeals are allowed. 12. We have deliberated on the observations arrived at by the CIT(A) as well as the view taken by the coordinate bench of the Tribunal in the case of Mukesh D. Ambani (supra). We find ourselves persuaded to be in agreement with the view taken by the coordinate bench that contributions of the tenants of the property towards sinking fund cannot be assessed as rental income of the assessee. We thus finding no reason to take a different view, therefore, uphold the deletion of the addition of ₹ 33,86,952/- on the said count by the CIT(A). The Ground of appeal No. 1 raised by the revenue before us is dismissed. 13. We now advert to the disallowance by the A.O of the claim of the assessee in respect of interest expenditure under Sec. 24(b) of ₹ 33,10,656/-, which was deleted by the CIT(A). We find that the CIT(A) observed that the issue pertaining to disallowance of interest on borrowed capital had came up before his predecessor in the assessees own case for A.Y 2010-11, wherein the said disallowance was vacated by the CIT(A) for the reason that the revenue had failed to establish that the borrowed fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits would form part of the reasonable expected rent for the property under consideration. We find that the A.O on the basis of his aforesaid conviction had worked out the notional interest on such interest free refundable deposits at ₹ 57,20,603/- and added the same to the income of the assessee from house property. We find that on appeal the CIT(A) observed that a similar addition of notional interest in respect of interest free deposits had came up before his predecessor in the assessees own case for the immediately preceding year, viz. A.Y 2010-11. The CIT(A) observed that his predecessor while disposing of the appeal of the assessee for A.Y 2010-11, after placing reliance on the various orders of the coordinate benches of the Tribunal and the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. J.K. Investors (Bom) Ltd. (2001) 248 ITR 723 (Bom), had observed that as the actual rent received or receivable by the assessee in respect of the aforesaid property was found to be in excess of the sum for which the property might reasonably be expected to have been let out from year to year, and the ALV had been determined under Sec. 23(1)(b), therefore, no addi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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