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TMI Blog2022 (1) TMI 779X X X X Extracts X X X X X X X X Extracts X X X X ..... a) and has directed the assessing officer to compute the deemed rent as per municipal rateable value. The Hon ble Court has held that based on cogent material the assessing officer must come to a definite conclusion that parties have concealed the real position. The Hon ble Court has further held that Municipal rateable value cannot be discarded straightaway, unless, there is cogent and reliable material to do so. Thus, the ratio that follows from the aforesaid decisions is: the assessing officer cannot determine notional rent based on estimation / guess work. In the facts of the present appeal, the assessee has furnished the municipal rateable value which is much less than the rental income offered - AO has not brought any concrete evidence on record to demonstrate that parties have concealed the real position. That being the case, no further addition can be made to the rental income by computing notional rent based on the interest free security deposit. In view of the aforesaid, we delete the addition made by the assessing officer. - Decided in favour of assessee. Disallowance u/s 14A - HELD THAT:- As emerging from record reveals that during the year under consideration, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. In course of assessment proceedings, the assessing officer, while verifying the computation of income furnished by the assessee noticed that assessee had shown net income from house property at ₹ 4,06,000/-. On verifying the rent agreement, the assessing officer noticed that the assessee has let out Flat No.214 admeasuring 3475 sq.ft. with two reserved car parking at NCPA Apartment, Nariman Point, Mumbai at ₹ 50,000/- per month. However, as per the terms of the agreement, the licencee has to deposit a refundable deposit of ₹ 5 crores with the assessee. After calling for information under section 133(6) of the Act from the housing society and making further enquiry, the assessing officer found that the market value of the rent in the particular area is between ₹ 4 to 4.9 lakhs per month. Thus, he was of the view that the assessee, in lieu of the reduced rent, has received refundable deposit of Rs. Crores. Accordingly, he issued a show cause notice to the assessee to explain why 10% of the refundable deposit should not be added back to the rent actually received. Though, the assessee objected to the proposed addition; however, rejecting the objection of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 120 taxmann.com 84 (Mad)(HC) 7. Maxopp Investment Ltd vs CIT (2018) 91 taxmann.com 154 (SC) 6. Strongly relying upon the observations of the assessing officer and learned Commissioner (Appeals), learned departmental representative submitted that to reduce the rental income, the assessee has received interest free security deposit of ₹ 5 crores. He submitted, the assessing officer has made effective enquiry to establish that the market value of the rent is much higher than what the assessee has offered. Thus, he submitted, there is no reason to interfere with the decision of departmental authorities. Without prejudice, he submitted, if the assessing officer has not confronted the enquiry conducted by him to the assessee, then the issue may be restored back to the assessing officer for fresh adjudication. 7. We have considered rival submissions in the light of decisions relied upon and perused materials on record. Undisputedly, as per the lease and licence agreement the property was let out for a monthly rent of ₹ 50,000/-. It is also a fact that in terms with the lease and licence agreement, the assessee has received interest free refundable security deposit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The aforesaid conclusion is correct. We may record that permissibility of adding notional interest into actual market rent received was not approved by the Calcutta High Court in the case of Commissioner of Income Tax Vs. Satya Co. Ltd [(1997) 140 CTR (Cal) 569] and categorically rejected in the following words: There is no mandate of law whereby the AO could convert the depression in the rate of rent into money value by assuming the market rate of interest on the deposit as the further rent received by way of benefit of interest-free deposit. But s. 23, as already noted, does not permit such calculation of the value of the benefit of interest-free deposit as part of the rent. This situation is, however, foreseen by Schedule III to the WT Act and it authorizes computation of presumptive interest at the rate of 15 per cent. as an integral part of rent to be added to the ostensible rent. No such provision, however, exists in the Act. That being so, the act of the AO in presuming such notional interest as integral part of the rent is ultra vires the provision of s. 23(1) and is, therefore, unauthorized. Though what has been urged on behalf of the Revenue is not to be brushed asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n analogy from the Wealth Tax Act, 1957 is also to-no avail. It is an admitted position that there is a specific provision in the Wealth Tax Act which provides for considering of a notional interest whereas Section 23(1) (a) contains no such specific provision. We approve the aforesaid view of the Division Bench of this Court and Operative words in Section 23 (l)(a) of the Act are the sum for which the property might reasonably be expected to let from year to year . These words provide a specific direction to the Revenue for determining the fair rent . The Assessing Officer, having regard to the aforesaid provision is expected to make an inquiry as to what would be the possible rent that the property might fetch. Thus, if he finds that the actual rent received is less than the fair/market rent because of the reason that the assessee has received abnormally high interest free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can undertake necessary exercise m that behalf. However, by no stretch of imagination, the notional interest on the interest free security can be taken as determinative factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever any such perquisite or benefit is sought to be treated as income, specific provisions in that behalf have been made in the Act by including such benefit, etc., in the definition of the income under section 2(24) of the Act. Specific provisions have also been made under different heads for adding such benefits or perquisites as income while computing income under those heads, e. g..salary, business. The computation of the income under the head House property is on a deemed basis. The tax has to be paid by reason of the ownership of the property. Even if one does not incur any sum on account of repairs, a statutory deduction therefore is allowed and where on repairs expenses are incurred in excess of such statutory limit, no deduction for such excess is allowed. The deductions for municipal taxes and repairs are not allowed to the extent they are borne by the tenant. However, even such actual reimbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a much higher rent. Thus, the Assessing Officer in a given case can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the fair rent in the market and there is sufficient material on record for different valuation. We may profitably reproduce the following observations of the Supreme Court in the case of Corporation of Calcutta Vs. Smt. Padma Debi, AIR 1962 SC 151, 153. A bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reasonableness Thus the rateable value, if correctly determined, under the municipal laws can be taken as ALV under Section 23(l)(a) of the Act. To that extent, we agree with the contention of the learned Counsel of the assessee. However, we make it clear that rateable value not binding on the assessing officer. If the assessing officer can show that rateable value under municipal laws does not represent the correct fair rent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or where there are no rents by reference to the assessments of comparable properties or to the profits carried from the property /or to the cost of construction. 9. Having done so, the Hon ble Jurisdictional High Court held as under:- 47. We are of the view that where Rent Control Legislation is applicable and as is now urged the trend in the real estate market so also in the commercial field is that considering the difficulties faced in either retrieving back immovable properties in metro cities and towns, so also the time spent in litigation, it is expedient to execute a leave and license agreements. These are usually for fixed periods and renewable. In such cases as well, the conceded position is that the Annual Letting Value will have to be determined on the same basis as noted above. In the event and as urged before us, the security deposit collected and refundable interest free and the monthly compensation shows a total mismatch, or does not reflect the prevailing rate or the attempt is to deflate or inflate the rent by such methods, then, as held by the Delhi High Court, the Assessing Officer is not prevented from carrying out the necessary investigation and enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l cases. There cannot be a blanket rejection of the same. If that is taken to be a safe guide, then, to discard it there must be cogent and reliable material. 49] We are of the opinion that market rate in the locality is an approved method for determining the fair rental value but ,it is only when the Assessing Officer is convinced that the case before him is suspicious, determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. We are of the view that municipal rateable value may not be binding on the Assessing Officer but that is only in cases of afore-referred nature. It is definitely a safe guide. 50] We have broadly agreed with the view taken by the Full Bench of the Delhi High Court. Hence, the issue of determination of the fair rental value in respect of properties not covered by or covered by the Rent Control Act is .to be undertaken in terms of the law laid down in the Full Bench decision of the Delhi High Court. 10. In case of CIT vs Moni Kumar Subba (supra), the Honourable Delhi High Court while dealing with an identical issue has held as under:- 9. Before we proceed to answer the aforesaid ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal interest into actual market rent received was not approved by the Calcutta High Court in the case of Commissioner of Income Tax Vs. Satya Co. ltd.[(1997) 140 CTR (Cal) 569] and categorically rejected in the following words: There is no mandate of law whereby the AO could convert the depression in the rate of rent into money value by assuming the market rate of interest on the deposit as the further rent received by way of benefit of interest-free deposit. But s. 23, as already noted, does not permit such calculation of the value of the benefit of interest-free deposit as part of the rent. This situation is, however, foreseen by Schedule III to the WT Act and it authorises computation of presumptive interest at the rate of 15 per cent, as an integral part of rent to be added to the ostensible rent, No such provision, however, exists in the Act. That being so, the act of the AO in presuming such notional interest as integral part of the rent is ultra vires the provision of s. 23(1} and is, therefore, unauthorised. Though what has been urged on behalf of the Revenue is not to be brushed aside as irrational, yet the contention is not acceptable as the law itself comes short o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is a specific provision in the Wealth Tax Act which provides for considering of a notional interest whereas Section 23(l)(a) contains no such specific provision. 13. We approve the aforesaid view of the Division Bench of this Court and Operative words in Section 23 (l)(a) of the Act are the sum for which the property might reasonably be expected to let from year to year . These words provide a specific direction to the Revenue for determining the 'fair rent'. The AO, having regard to the aforesaid provision is expected to make an inquiry as to what would be the possible rent that the property might fetch. Thus, if he finds that the actual rent received is less than the 'fair/market rent' because of the reason that the assessee has received abnormally high interest free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can undertake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest free security can be taken as determinative factor to arrive at a 'fair rent'. Provisions of Section 23(l)(a) do not mandate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein: 6. With regard to question Nos. (5) and (6) which are only for the asst. yrs. 1984-85 and 1985-86 the further issue involved is whether any addition to the annual rental value can be made with reference to any notional interest on the deposit made by the tenant. When the annual value is determined under sub-cl. (a) of sub-s. (1) of s. 23 with reference to the fair rent then to such value no further addition can be made. The fair rent, takes into consideration everything. The notional interest on the deposit is not any actual rent received or receivable. Under sub-cl. (b) of s. 23(1) only the actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever any such perquisite or benefit is sought to be treated as income, specific provisions in that behalf have been made in the Act by including such benefit, etc., in the definition of the income under s. 2(24) of the Act. Specific provisions have also been made under different heads for adding such benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust come to a definite conclusion that parties have concealed the real position. The Hon ble Court has further held that Municipal rateable value cannot be discarded straightaway, unless, there is cogent and reliable material to do so. Thus, the ratio that follows from the aforesaid decisions is: the assessing officer cannot determine notional rent based on estimation / guess work. In the facts of the present appeal, the assessee has furnished the municipal rateable value which is much less than the rental income offered. Further, the assessing officer has not brought any concrete evidence on record to demonstrate that parties have concealed the real position. That being the case, no further addition can be made to the rental income by computing notional rent based on the interest free security deposit. In view of the aforesaid, we delete the addition made by the assessing officer. 12. In ground 2 assessee has challenged the disallowance of expenditure under section 14A read with rule 8D. 13. We have considered rival submissions and perused materials on record. The undisputed factual position emerging from record reveals that during the year under consideration, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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