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TMI Blog2018 (10) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... tional interest on interest free security deposit received by the assessee could not be added to the actual rent received / receivable by the assessee while computing annual value under section 23(1) (b) of the Income tax Act, 1961. 3. On the facts and in the circumstances of the case, the CIT (A) has erred in not considering the fact that whether any benefit accrued to the assessee on account of interest free security deposit could be added to the annual value under section 23 of the Income tax Act, 1961. 4. On the facts and in the circumstances of the case, the CIT (A) has erred in not considering the fact that the MCD authorities have not taken into consideration the interest free security deposit of Rs. 10.78 crores obtained by the assessee during the year under consideration because the assessee did not inform the MCD authorities about the said interest free deposit. 5. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition made by the AO of long term capital gain of Rs. 78,81,841/- and short term capital gain of Rs. 13,67,67,379/- arising from transfer of land at Siliguri after considering the non interest bearing security of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted on 31/12/2008 after making certain additions. On further appeal, the Ld. CIT(A) allowed the appeal partly and, hence, both the Revenue and assessee are in appeal before the Tribunal, raising their respective grounds of appeal as reproduced above. 4. The grounds No. 1 to 4 of the appeal of the Revenue relates to deletion of addition of Rs. 97,02,000/-under the head 'income from house property'. The facts qua the issue in dispute are that in the year 2000-01, the assessee leased its two properties, located at 267, Masjid Moth, Udai Park, New Delhi and 87, Adhichini, New Delhi, to M/s. Subba Microsystems Ltd. (i.e. a related concern, in which substantial investment was made by the assessee and his family members) against monthly rent of Rs. 1,80,000/- and receipt of security money of Rs. 8.58 crores and Rs. 2.20 crore respectively. 4.1 According to the Assessing Officer, in normal course of letting out of properties, advance rent/security deposit varies from six-month to 3 years but in the instant case security deposit of Rs. 10.78 crore received by the assessee was much more than the amount of security deposit equivalent to 3 years rent, i.e. 64.80 lakhs. The Ld. Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, it was pointed out that this very issue has again been decided in favour of the appellant in assessment year 2007-08 by Hon'ble ITAT and copy of order of ITAT was placed on record. The Assessing Officer has made addition on same basis as in the past on the ground that appeal u/s 260A has been filed before hon'ble Delhi High Court in respect of assessment year 2001-02. It is further noted that even hon'ble Delhi High Court has dismissed the appeal of revenue, vide order dt. 30/3/1011, 333 ITR 38 (Del.). In view of relevant facts as brought out above, the issue is fully and squarely covered in favour of the appellant and accordingly addition of Rs. 97,02,000/- is not sustainable and same is hereby deleted." 4.2 Before us, the Ld. DR submitted that the Assessing Officer has worked out the fair rent in the case of the assessee following the by-laws of municipal Corporation and added interest at the rate of 9% on security deposit (which was given interest-free to the assessee) for determination of fair rent, which is in accordance with the provisions of section 23(1)(a) of the Act. 4.3 The Ld. counsel of the assessee, on the other hand, submitted that issue in dispute involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air 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 also add that in place like Delhi, this has now become redundant inasmuch as the very basis of fixing property tax has undergone a total change with amendment of the Municipal Laws by Amendment Act, 2003. Now the property tax is on unit method basis. 20. In the present case, the AO added notional interest on the interest free security for arriving at annual letting value. Since that was ITA No.499 of 2008 with ITA No.803 of 2007, ITA No.1113 of 2008, ITA No.388 of 2010, not permissible, the effect would be that such assessment was rightly set aside by the CIT (A) and the Tribunal. Therefore, the orders would not call for any interference. These appeals are, thus, dismissed on this ground. Once we hold this, the very basis adopted by the AO to fix annual letting value was wrong and therefore, no further exercise in fact is required by us in these appeals." 4.5 The Hon'ble Delhi High Court further laid down as 'how to determine a reasonable/fair rent for the purpose of income from house property' as under: "21. We would like to remark that still ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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." 4.6 We also find that the Tribunal in ITA No. 2107/Del/2014 for assessment year 2009-10 in the case of the assessee, has deleted the addition of notional interest on interest-free security deposit for determining Annual Lettable Value (ALV) observing as under: "7. We have carefully considered the rival contentions and we have also perused the order of the Hon'ble Delhi High Court - full bench reported at 333 ITR 38(Del.) dealing with the identical issue with respect to the same properties where issues have been decided by the Hon'ble High court in favour of the assessee. Therefore, respectfully following the decision of the Hon'ble High Court we decide ground no. 1 in favour of the assessee reversing the order of the lower authorities deleting addition of Rs. 52.33 Lacs been made in respect of rented properties. Therefore, ground No. 1 of the appeal is allowed." 4.7 Since the very same dispute was present in assessment year 2003-04 and in the assessment year consideration, the Assessing Officer has followed finding of his predec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received Rs. 15 crore as interest-free refundable security for leasing the said land for 30 years, which at the option of the 'lessee' could be further renewed for another 10 years and further extension of the lease was also possible on the basis of mutual agreement of the two parties. Under the lease agreement, the SML was given rights to construct and commercially operate hotel on the said land. The 'lessee' was permitted to mortgage, charge, transfer, assign the demised lease including the additional building and construction in the superstructure as may be erected or made by the lessee over and above the structure, if any, in favour of financial institution/corporations and banks as security for loan and other financial assistance that may be granted by them or any of them to the lessee. The SML was also given right to allow the financial institution to realise their dues from the demised leased land. 5.4 A Memorandum of Understanding (MOU) was entered with SML in respect of Darjeeling land for construction and operation of the hotel on the said land and similar rights were given however the lease in case of Darjeeling land was irrevocable without any interference from the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en down value of the same in the books of the company as on 31st March of the last year, unless the parties to the agreement decide to- continue with the agreement. So, agreement cannot be revoked at least before 30 years. After that also it is at the sweet will of the assessee and the company. The question is who is the company? The assessee along with his family members owns 67% shares as on 31-03-2006. After this date, assessee has further increased his share-holding by investing this Rs. 30 Crores in the shares of this company. So, he remains the effective decision maker in both the cases." 5.6 On the issue of consideration against claim of the said transfer, the Assessing Officer held the entire amount of Rs. 31.5 crores received as interest-free security deposit as 'consideration' received against respective lands observing as under: "9.7 In view of the above discussion and facts of the case it is clear that a bundle of rights like enjoyment of property, construction of building thereon, right to mortgage and right to transfer the property have been sought to be transferred for a hefty consideration that has been disguised as interest free security. Considering that in bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after Allowing indexation 4,52,618 X 497 =Rs. 6,40,886/- 351 Long term Capital Gain =Rs.78,818441/- Short Term Capital Gain In respect of Siliguri Land Deemed sale consideration of 103.75 Kathas (Rs.15,00,00,000 - Rs. 85,22,757) Rs.14,14,77,273 Cost of Acquisition Rs. 47,09,894 Rs.13,67,67,379/- In respect of Siliguri land Deemed Sale Consideration Rs.20,00,00,000 Cost of Acquisition Rs. 1,39,66,485 Rs. 18,60,33,515/- Total Short Term Capital Gain Rs.32,28,00,894/-" 5.7 The Ld. CIT(A) after considering the submissions and argument of the learned Authorised Representative, upheld the transaction as 'transfer' liable to capital gain, however, as far as consideration for transfer of the right is concerned was held to be equal to stamp duty valuation of the properties. The relevant finding of the Ld. CIT(A) is reproduced as under: "5.3 Findings:- I have considered the assessment order, written submissions with paper book and arguments of Ld. AR. The appellant has leased the land to its associate concern M/s Subba Microsystem Ltd. for 30 years extendable with mutual consent of lessor and lessee. The appellant has received r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As in the present case, the exploitation of the right property in question is to the extent which is more than only leasing as discussed supra. I agree with various judicial pronouncement relied upon by the Assessing Officer in support of transfer of assets. Accordingly, I confirm the decision to tax the transfer under section 45 as capital gain. Now coming to the consideration for such transfer, I do not agree to the Assessing Officer to take refundable deposit of Rs. 35 crores as consideration. As per the terms of lease agreement, this deposit is refundable in clear terms. The lease agreement has been executed into-to. I do not approve the findings of the assessing officer that the agreement is shame and reliance placed on various judicial pronouncement, namely, Macdowell & Co. Ltd Vs. Commercial Tax Officer or Union of India Vs Azadi Bachchao Andolan and other judicial pronouncements is misplaced on facts. This kind of long lease does not make the transaction sham as similar lease of 72 years in the case of Lake Hotels & Motels Ltd. with security deposit has not been held as sham. In view of the above position of facts, the market value of the property is an indicator for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee has received only refundable security against least of land for a period of 30 years in addition to the lease rent received by the assessee from month-to-month basis. The Ld. counsel referred to page - 20 of the order of Ld. CIT(A), wherein the terms of lease have been reproduced. The Ld. counsel referred that in clause 5 it has been specifically mentioned that the security deposit would be refundable by the lessor to the lessee at the time of handing over of the actual physical vacant possession of the demised premises by the lessee to the lessor. According to the Ld. counsel, the right to mortgage was allowed to the lessee for facilitating in obtaining loan for construction of the hotel on the said land and the mortgage allowed cannot be a ground for holding the transaction as 'transfer' under section 2(47) of the Act. The Ld. counsel in support of the contention that the transaction amounts to lease only and not transfer, relied on the decision of the Hon'ble Rajasthan High Court in the case of CIT Vs. Lake Palace Hotels and Motels 321 ITR 165 (Rajasthan). 5.10 The Ld. counsel also relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Balbir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for 99 years. 5.15 We have heard the rival submissions and perused the relevant material on record. The main issue in dispute is in respect of the land at Drajeeling and Suiliguri leased for a period of 30 years, to the company in which assessee is having substantial interest. The company has been given right to mortgage these properties to financial institution for availing loans and those financial institutions have been given right to take over the properties in case of default by the company in repayment of the loans. In background of the facts narrated in aforesaid paras in respect of the transaction of lease of the properties, according to the Revenue the transaction is in the nature of transfer of rights in property through lease agreement. The assessee in support of his contention stated that said transaction is merely lease and not transfer of the property has relied on the decision of the Hon'ble Rajasthan High Court in the case of Lake Palace Hotels and Motels (supra). In the said case the assessee had leased out Land to one East India Hotels Ltd. for a period of 72 years at a gradually increasing rent and also a security of Rs. 2.5 crores bearing interest rate of 9%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hypothecated to the lender on the terms that same can be sold in case of default. Moreover we find that the issue whether transfer of rights in property in the entire process of leasing of land has not been came up for discussion before the Hon'ble High Court. In view of the above, we concur with the Ld. CIT(A) that ratio of the said decision of the Hon'ble High Court is not applicable over the facts of the instant case. 5.18 In the case of Balweer Singh Maini (supra) relied upon by the counsel of the assessee, Joint Development Agreement (JDA) fell through for want of permissions and, thus, it was held that there would be no profit or gain, which would arose from transfer of the capital asset. Thus, the ratio of the above decision is also not applicable over the fact of the instant case. The Hon'ble Supreme Court's observed in para 22 of the judgment as under: "22. The object of Section 2(47)(vi) appears to be to bring within the tax net a de facto transfer of any immovable property. The expression "enabling the enjoyment of" takes colour from the earlier expression "transferring", so that it is clear that any transaction which enables the enjoyment of immovable property must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred all his rights of enjoyment in property to the company. 5.21 In view of the aforesaid discussion, we do not find any infirmity in the finding of the Ld. CIT(A) of holding the transaction as transfer liable for capital gains under section 45 of the Act. 5.22 The next question, which arises in the case, is the amount of sale consideration liable for capital gains. According to Assessing Officer, the amount of security deposit received of Rs. 35 crore is sale consideration received and he apportioned the sale consideration for computation of short-term capital gain and long-term capital gain. In case of Siliguri land, the Assessing Officer computed long-term capital gain of Rs. 78,81,841/- and short-term capital gains of Rs. 13,67,67,379/-. In case of Darjiling land, the short-term capital gain of Rs. 18,60,30,515/- was computed by the Assessing Officer. 5.23 The Ld. CIT(A), however, observed that majority of the land was purchased by the assessee during the year under consideration for Rs. 2 crores. According to the Ld. CIT(A) the land was purchased at lesser rate than the guideline value is evident from register deed. According to the Ld. CIT(A), the apparent considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed and the grounds No. 1 & 2 of the appeal of the assessee are dismissed. 6. The grounds No. 7 & 8 of the appeal of the Revenue relates to addition of Rs. 2,51,00,871/- made by the Assessing Officer under section 2(22)(e) of the Act. 6.1 The addition in question was proposed by the Assessing Officer alternatively. According to the Assessing Officer, the assessee held 17.6% shares of M/s. Suba Microsystem Limited and, thus, the payment received to the extent of accumulated profit of Rs. 2,51,00, 871/- was liable to be taxed as deemed dividend in terms of section 2(22)(e) of the Act. But no separate addition was made in the final computation of the order on this account as amount of advance received by way of security deposit was already taxed under the head 'capital gain'. The Ld. CIT(A) deleted the addition holding that interest-free deposit was advanced during the course of the business and thus it was not liable for deemed dividend u/s 2(22)(e ) of the Act. 6.2 Before us, the Ld. DR relied on the order of the Assessing Officer, whereas the learned counsel relied on the order of the Tribunal in ITA No. 2107/Del/2014 for assessment year 2009-10 wherein, the identical issue has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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