DCIT 9(1), MUMBAI v. AVACADO PROPERTIES & TRADING (I) P. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI P.M. JAGTAP AM AND SMT. ASHA VIJAYAR AGHAVAN JM I.T.A.NOS. 2347 & 2348/MUM/2010 ASSESSMENT YEARS : 2005-06 & 2006-07 THE DY. COMMISSIONER OF INCOME- TAX RANGE 9(1) R.NO. 223 AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. VS. M/S. ADVACADO PROPERTIES & TRADING (I) PVT. LTD. PARAQDIGM S.NO. 1406A/18 MINDSPACE MALAD (W) MUMBAI 400 064. PAN: AADCA 9413 F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY SHANKAR RESPONDENT BY : SHRI SANJAY SOMANI O R D E R PER P.M. JAGTAP AM : THESE TWO APPEALS ARE PREFERRED BY THE REVENUE AGA INST TWO SEPARATE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS)-19 MUMBAI BOTH DATED 01.01.2010 FOR THE ASSESSMENT YEARS 2005 -06 AND 2006-07 AND SINCE A COMMON ISSUE IS INVOLVED THEREIN THE SAME HAVE BEE N HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER . 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF DEVELOPING AND OPERATING INDUSTRIAL PAR KS. DURING THE YEARS UNDER CONSIDERATION PREMISES DEVELOPED BY IT WERE GIVEN ON RENT TO VARIOUS TENANTS. IN ADDITION TO THE SUBSTANTIAL RENT RECEIVED FOR THE S AID PREMISES THE ASSESSEE COMPANY HAD ALSO RECEIVED INTEREST FREE DEPOSITS OF SIZEABLE AMOUNTS FROM THE TENANTS/LICENCEES. IN THE ASSESSMENTS COMPLETED UND ER SECTION 143(3) FOR BOTH THE YEARS UNDER CONSIDERATION THE ASSESSING OFFICER AD DED INTEREST AMOUNT CALCULATED AT THE RATE OF 8% PER ANNUM ON THE SECURITY DEPOSIT S ON NOTIONAL BASIS TO THE ANNUAL VALUES OF THE PROPERTIES FOR THE PURPOSE OF COMPUTING THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX UNDER THE HEAD INCOME F ROM HOUSE PROPERTY. FOR THIS ITA NOS.2347 & 2348/M/2010 M/S. ADVACADO PROPERTIES & TRADING (I) PVT. LTD. 2 ACTION HE RELIED ON THE PROVISIONS OF SECTION 23(1 )(A) OF THE ACT. ON APPEAL THE LEARNED CIT(A) DELETED THE ADDITIONS MADE BY THE AS SESSING OFFICER ON THIS ISSUE FOR BOTH THE YEARS UNDER CONSIDERATION ON THE GROUN D THAT THE ACTUAL RENT RECEIVED BY THE ASSESSEE BEING MORE THAN THE RATEABLE VALUE DETERMINED BY THE MUNICIPAL AUTHORITIES NO ADDITION ON ACCOUNT OF INTEREST ON SECURITY DEPOSIT COULD BE MADE ON NOTIONAL BASIS. FOR THIS CONCLUSION THE LEARNED CIT(A) RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF J.K. I NVESTORS LTD. REPORTED IN 112 TAXMAN 107. AGGRIEVED BY THE ORDERS OF THE LEARNED CIT(A) THE REVENUE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT SI MILAR ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INTEREST O N INTEREST FREE SECURITY DEPOSIT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 WAS DELETED BY THE LEARNED CIT(A) AND THE ORDER OF THE LEARNED CIT(A) GIVING T HE RELIEF TO THE ASSESSEE ON THE SAME ISSUE IN THAT YEAR HAS ALREADY BEEN UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 9.09.2010 PASSED IN ITA NO. 4229/MUM/2008 REL YING MAINLY ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF J.K. INVESTORS (SUPRA). 4. IT IS ALSO OBSERVED THAT A SIMILAR ISSUE HAS BE EN DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE CASE OF M/S. RECLAMATION REALITY (I) PVT. LTD. VIDE ITS ORDER DATED 26.6.20 10 PASSED IN ITA NO. 1411 TO 1413 1733 AND 1434/MUM/2007 AFTER TAKING INTO CONS IDERATION THE RELEVANT JUDICIAL PRONOUNCEMENTS ON THE POINT. THE SAID DECI SION OF THE TRIBUNAL IN THE CASE OF M/S. RECLAMATION REALITY (I) PVT. LTD. HAS BEEN ANALYSED RECENTLY BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF EV EREST KANTO INVESTMENT AND FINANCE LTD. VIDE ITS ORDER DATED 28.01.2011 PASSE D IN ITA NOS. 1718 TO 1722 AND 1747/MUM/2009 WITH REFERENCE TO THE PROVISIONS OF S ECTION 23(1)(A) AS WELL AS VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE TRIBUNAL TO DECIDE THE ISSUE IN ITA NOS.2347 & 2348/M/2010 M/S. ADVACADO PROPERTIES & TRADING (I) PVT. LTD. 3 FAVOUR OF THE ASSESSEE AND WE FIND IT WORTHWHILE T O REPRODUCE PARAGRAPH NOS. 11 TO 15 OF THE ORDER OF THE TRIBUNAL PASSED IN THE CA SE OF M/S. EVEREST KANTO INVESTMENT AND FINANCE LTD.(SUPRA) BEING RELEVANT I N THIS CONTEXT: 11. AS ALREADY MENTIONED THE A.O. AS WELL AS THE L D. CIT(A) HAS RELIED ON THE PROVISIONS OF SECTION 23(1)(A) TO TAK E THE ANNUAL VALUE OF THE ASSESSEES PROPERTY AT A HIGHER AMOUNT THAN THE RENT ACTUALLY RECEIVED BY THE ASSESSEE HOLDING THAT THE SAME REPR ESENTED THE SUM FOR WHICH THE PROPERTY OF THE ASSESSEE MIGHT REASON ABLY BE EXPECTED TO LET FROM YEAR TO YEAR. IT IS PERTINENT TO NOTE HER E THAT AS PER THE RELEVANT PROVISIONS OF SECTION 23(1) AS APPLICABLE UP TO A.Y. 1975-76 THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR ALONE REPRESENTED ACTUAL VALUE OF THE PROPERTY FOR THE PURPOSE OF COMPUTING INCOME UNDER THE HEAD INC OME FROM HOUSE PROPERTY. THEREAFTER AMENDMENT WAS MADE AND AS PE R THE AMENDED PROVISIONS OF SECTION 23(1)(B) MADE APPLICABLE FROM A.Y. 1976-77 THE ACTUAL RENT RECEIVED WAS TREATED TO REPRESENT THE A NNUAL VALUE PROVIDED IT EXCEEDS THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE LEGISLAT IVE INTENTION OF THE SAID AMENDMENT WAS EXPLAINED BY CBDT IN CIRCULAR NO . 204 DTD. 24.7.76 AND AFTER TAKING NOTE OF THE SAID CIRCULAR AND AFTER REPRODUCING THE RELEVANT PORTION THEREOF IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA) THE TRIBU NAL HELD THAT THE POSITION OF LAW PRIOR TO INTRODUCTION OF SECTION 23 (1)(B) AS CLARIFIED BY THE BOARD ITSELF WAS THAT THE ANNUAL VALUE WAS EQUA L TO THE MUNICIPAL VALUATION OF THE PROPERTY. THE TRIBUNAL HELD THAT THIS IS HOW THE BOARD SOUGHT TO INTERPRET THE EXPRESSION THE SUM F OR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM Y EAR TO YEAR USED IN SECTION 23(1)(A). 12. THE TRIBUNAL ALSO TOOK NOTE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DIWAN DAULAT KAPOOR VS . NEW DELHI MUNICIPAL COMMITTEE 122 ITR 700 (SC) WHEREIN THE QU ESTION THAT HAD ARISEN FOR CONSIDERATION WAS AS TO WHAT SHOULD BE T HE BASIS OF DETERMINING THE ANNUAL VALUE FOR THE PURPOSE OF LEV Y OF PROPERTY TAX. THE EXPRESSION ANNUAL VALUE AS DEFINED IN THE DEL HI MUNICIPAL CORPORATION ACT 1957 AND PUNJAB MUNICIPAL ACT 1911 WAS GROSS ANNUAL RENT AT WHICH SUCH HOUSE OF BUILDING MIGHT R EASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE SU PREME 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 HONB LE SUPREME 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. 13. THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. ALSO TOOK NOTE OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MRS. SHEILA KAUSHISH V S. CIT 131 ITR 435 (SC) WHEREIN THE QUESTION AROSE IN THE CONTEXT OF PROVISIONS OF ITA NOS.2347 & 2348/M/2010 M/S. ADVACADO PROPERTIES & TRADING (I) PVT. LTD. 4 SECTION 23 OF THE INCOME TAX ACT AND IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE RATIO OF ITS DECISION IN THE CASE OF DEWAN DAULAT RAI KAPOOR (SUPRA) WOULD BE EQUALLY APPLICAB LE IN INTERPRETING THE DEFINITION OF ANNUAL VALUE GIVEN IN SECTION 2 3(1) OF THE INCOME TAX ACT. IT WAS HELD THAT THESE DEFINITIONS ARE GIV EN IN IDENTICAL TERMS AND IT WAS IMPOSSIBLE TO DISTINGUISH THE DEFINITION OF ANNUAL VALUE GIVEN IN SECTION 23(1) OF THE INCOME TAX ACT FROM T HE DEFINITION OF THAT TERM GIVEN IN THE DELHI MUNICIPAL CORPORATION ACT 1 957 AND THE PUNJAB MUNICIPAL ACT 1911. IT WAS THEREFORE HELD A DOPTING IDENTICAL LINE OF REASONING THAT EVEN IF THE STANDARD RENT OF A BUILDING HAS NOT BEEN FIXED BY THE CONTROLLER THE ANNUAL VALUE OF T HE BUILDING AS PER SECTION 23(1) OF THE INCOME TAX ACT MUST BE HELD TO BE A STANDARD RENT DETERMINABLE UNDER THE PROVISIONS OF THE RENT CONTR OL ACT AND NOT THE ACTUAL RENT RECEIVED BY THE LANDLORD FROM THE TENAN T. THE HONBLE APEX COURT ALSO OBSERVED THAT THIS INTERPRETATION WHICH WAS BEING PLACED ON THE LANGUAGE OF SECTION 23(1) OF THE INCOME TAX ACT CAN BE SAID TO HAVE RECEIVED LEGISLATIVE APPROVAL BY THE AMENDMEN T MADE IN THE SAID PROVISIONS WHEREBY IT WAS PROVIDED IN SECTION 23(1) (B) THAT WHERE THE PROPERTY IS LET AND THE ANNUAL RENT RECEIVED OR REC EIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM FOR WHIC H THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR TH E AMOUNT SO RECEIVED OR RECEIVABLE SHALL BE DEEMED TO THE ANNUAL VALUE O F THE PROPERTY. 14. THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA) THEN WENT ON TO REFER TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PRABHABATI BANSALI 141 ITR 419 WHEREIN IT WAS HELD THAT RELYI NG ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DEWAN D AULAT RAI KAPOOR (SUPRA) AND MRS. SHEILA KAUSHISH (SUPRA) WHI LE DECIDING THE ISSUE RELATING TO DETERMINATION OF ACTUAL VALUE OF THE ASSESSEES PROPERTY IN MUMBAI THE INCOME FROM HOUSE PROPERTY M UST BE COMPUTED ON THE BASIS OF THE SUM WHICH MIGHT REASONABLY BE E XPECTED TO LET FROM YEAR TO YEAR AND WITH THE ANNUAL MUNICIPAL VALUE PR OVIDED SUCH A VALUE IS NOT ABOVE THE STANDARD RENT RECEIVABLE AND THE SAME COULD BE ADOPTED AS THE SAFEST GUIDE FOR THIS PURPOSE. AS ME NTIONED BY THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMA TION REALTY INDIA P. LTD. (SUPRA) THE SAID DECISION WAS RENDERED BY THE HONBLE CALCUTTA HIGH COURT AFTER TAKING INTO CONSIDERATION THE PROV ISIONS OF SECTION 154 OF THE BOMBAY MUNICIPAL CORPORATION ACT WHEREIN THE MANNER OF DETERMINATION OF RATABLE VALUE WAS LAID DOWN WHICH WAS BASED ON THE ANNUAL RENT FOR WHICH THE PROPERTY MIGHTY REASONABL Y BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE CALCUTTA HIGH CO URT HELD THAT THE MUNICIPAL VALUATION AND ANNUAL VALUE U/S 23(1)(A) O F THE INCOME TAX ACT THUS ARE ONE AND SAME. AS NOTED BY THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SU PRA) THE SAID DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRABHABATI BANSALI (SUPRA) HAS BEEN SUBSEQUENTLY FOLLOWED BY T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF M.V. SONAVALA VS. CIT 177 ITR 246 (BOM) WHEREIN THE QUESTION POSED TO THEIR LORDSHIPS WAS WHETHER THE ACTUAL COMPENSATION RECEIVED COULD BE TAKEN AS ANNU AL VALUE OF THE PROPERTY AS AGAINST THE MUNICIPAL RATABLE VALUE AND THE SAME WAS ITA NOS.2347 & 2348/M/2010 M/S. ADVACADO PROPERTIES & TRADING (I) PVT. LTD. 5 ANSWERED BY THE HONBLE BOMBAY HIGH COURT IN THE NE GATIVE THAT IS AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSE E. 15. IN OUR OPINION THE ISSUE INVOLVED IN THE PRES ENT CASE THUS IS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SU PRA) WHICH IN TURN HAS RELIED ON AND FOLLOWED THE JUDGMENTS OF HONBLE APEX COURT AND JURISDICTIONAL HIGH COURT ON A SIMILAR ISSUE AND RE SPECTFULLY FOLLOWING THE SAID JUDICIAL PRONOUNCEMENTS WE REVERSE THE IM PUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO ADOPT THE RENT ACTUALLY RECEIVED BY THE ASSESSEE DURING A.Y. 2003- 04 TO 2006-07 AS ANNUAL VALUE OF THE PROPERTY BEING MORE THAN THE MU NICIPAL RATABLE VALUE. THE ADDITIONS MADE BY THE A.O. AND CONFIRME D BY THE LD. CIT(A) ON THIS ISSUE ARE ACCORDINGLY DELETED ALLOWI NG GROUND NO. 2 OF THE ASSESSEES APPEALS FOR A.Y. 2003-04 TO 2006-07. 5. THE ISSUE INVOLVED IN THE PRESENT CASE THUS IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIBUNAL IN THE CASE OF M/S. RECLAMATION REALITY (I) PVT. LTD.(SUPRA) AND M/S. EVEREST KANT O INVESTMENT & FINANCE LTD. (SUPRA) AS WELL AS IN THE ASSESSEES OWN CASE FOR T HE ASSESSMENT YEAR 2004-05 (SUPRA) AND RESPECTFULLY FOLLOWING THE SAID DECISIO NS OF THE TRIBUNAL WE UPHOLD THE IMPUGNED ORDERS OF THE LEARNED CIT(A) DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INTEREST O N SECURITY DEPOSIT FOR COMPUTING THE ANNUAL VALUE OF THE PROPERTY. 6. IN THE RESULT THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEBRUARY 2011. SD. SD. (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 25 TH FEBRUARY 2011. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT-0 MUMBAI 4. THE CIT(A)-19 MUMBAI 5. THE DR A BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI