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TMI Blog2021 (8) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... nual letting value has to be determined on basis of annual rent received by the assessee and not what has been received by its tenants from the ultimate users - Decided in favour of assessee. - ITA No.7615/Mum/2016 - - - Dated:- 24-8-2021 - Shri Mahavir Singh, Vice President And Shri M.Balaganesh, Accountant Member For the Assessee : Ms. Ritu For the Revenue : Shri Gaurav Bathom ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.7615/Mum/2016 for A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-50, Mumbai in appeal No.CIT(A)-50/IT-479/2013-14 dated 19/09/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 26/03/2013 by the ld. Dy. Commissioner of Income Tax, Central Circle 44, Mumbai (hereinafter referred to as ld. AO). 2. At the outset, we find that this appeal was already disposed by this tribunal vide its order dated 28.2.2019. Later this order was recalled in Miscellaneous Application proceedings in MA No. 449/Mum/2019 dated 26.3.2021 only to the extent of adjudication of Ground No. 2 by considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister concern) at substantially lower rent , thereby enabling the sister concern to derive more rent for the same period out of sub-leasing activity. In other words, the ld AO observed that the market rent of the property was substantially more than that received by the assessee from FEPL. Accordingly, the ld AO showcaused the assessee as to why the transaction of giving the property on lease to FEPL may not be treated as sham and full Annual Lettable Value (ALV) of the property may not be brought to tax in its hands. The reply filed by the assessee did not find favour with the ld AO and he adopted ALV of the property at ₹ 19,49,10,000/- and reworked the income of the assessee under the head income from house property . 4.2. On first appeal, the ld CITA in principle approved the action of the ld AO, however, observed that the ld AO had erred in computing the ALV of the property for the entire year at ₹ 19,49,10,000/- (11,02,50,000 for 7 months + 8,46,60,000 for 5 months). The ld CITA noticed that as the actual rent received by the assessee for the last 5 months was ₹ 5,31,60,000/- , therefore, as per the method applied by the ld AO , the ALV of the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return showing rent received from three companies. The Assessing Officer, however, held that for the purpose of section 23, the annual value of the property should not be one entered into by the assessee with its tenants, but the amount received by the tenants from RIL. On appeal, the Commissioner allowed the assessee's claim. On revenue's appeal, the Tribunal upheld the order of the Commissioner (Appeals). 4.4. We find that the Hon ble Jurisdictional High Court held as under:- 6. We have given our anxious consideration to the matter. Considerable time was spent as to whether there has been a departure from the ratio decedendi in McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) in the case of Union of India v.AzadiBachaoAndolan[2003] 263 ITR 706 (SC). We may address ourselves to that issue. The judgment in McDowell Co.'s case (supra) was of a Constitution Bench. The majority judgment insofar as the issue of colourable exercise and tax planning observed as under:- Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with circumspection, within the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. [Emphasis supplied]. The Supreme Court has thus explained as to how it is understood the law laid down in McDowell Co. Ltd. (supra). There is, therefore, no departure from the law laid down in McDowell Co. Ltd.'s case (supra), in AzadiBachaoAndolan's case (supra). In our opinion, therefore, the ratio of McDowell's case ( supra) as understood by the Supreme Court in AzadiBachoAndolan'scase (supra) is the law, considering that that is how the Supreme Court understood the ratio decidendi of the Judgment in McDowell Co. Ltd.'s case (supra). In our opinion, therefore, it is not possible to contend that there is departure on the principles laid down in McDowell Co. Ltd.'s case (supra). 7. That bring us to the facts of the case. It is no doubt true that the Assessing Officer had recorded a finding in para 5.4 that the shareholding of the assessee-company as well as the intermediary company is held by another set of group companies an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a colourable device. In these circumstances considering section 23, what is assessable to tax is the income received from the tenant falling either under sub-section (a) or (b) of section 23(1). The compensation received by the tenant would be taxable in the hands of the tenant. Appeal would lie on substantial question of law from the order of the Tribunal in respect of the matters which were taken up before it and/or on a pure question of law based on undisputed material on record. That is not the case over here. 10. We may also note that section 23 before its amendment by Finance Act, 2001 with effect from 1-4-2001 read as under :- 23. Annual value how determined - (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; (b) where the property is let and the annual 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. This was necessitated on account of the Supreme Court interpreting section 23(1) as it then stood and to bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at though the annual value is fixed in terms of the Agreement even though it is not received in the relevant year, yet the same would be assessable to tax in terms of the illustration given on behalf of the assessee. The contention, therefore, as urged on behalf of the revenue on the construction or expression 'receivable' will have to be rejected. 11. The issue whether the contract between Reliance and the intermediary tenant is a sham cannot be gone into as the question would not arise in the absence of it being in issue raised before the Tribunal. That question as framed does not, therefore, arise. Further as noted earlier it is not the contention of revenue that the contract between the assessee and the tenant is sham. The annual value would and be the value in terms of that contract. Therefore, the annual value is the annual value received or receivable by the owner from the tenant irrespective whether tenant on such letting has received higher rent from RIL. 12. Considering the above, in our opinion the question of law at 'A' as framed would not arise. Question B has to be answered in the affirmative and against the revenue. Consequently appeal s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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