DCIT - 10(1), MUMBAI v. M/s. RECLAMATION REAL ESTATE CO. INDIA P. LTD., MUMBAI

ITA 3066/MUM/2008 | 2005-2006
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 306619914 RSA 2008
Assessee PAN AAACI4974N
Bench Mumbai
Appeal Number ITA 3066/MUM/2008
Duration Of Justice 2 year(s) 8 month(s) 22 day(s)
Appellant DCIT - 10(1), MUMBAI
Respondent M/s. RECLAMATION REAL ESTATE CO. INDIA P. LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 28-01-2011
Date Of Final Hearing 13-10-2010
Next Hearing Date 13-10-2010
Assessment Year 2005-2006
Appeal Filed On 06-05-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI. V. DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 3066/MUM/2008. ASSESSMENT YEAR : 2005-06. ASSTT. COMMISSIONER OF INCOME-TAX M/S RECLAMATION REAL ESTATE CO. RANGE-10(1) MUMBAI. VS . P. LTD. ICICI BANK TOWER BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051. PAN AAACI4974N APPELLANT BY : SHRI JITENDRA YADHAV. RESPONDENT BY : SMT. ARAT I VISSANJI. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF THE CIT(APPEALS)-X MUMBAI DATED 25-02-20080 ON THE FOL LOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE (I) THE PROPORTIONATE AMOUNT OF RENT CALCUL ATED INCLUDING NOTIONAL INTEREST ON THE ADVANCE RENT AND (II) THE NOTIONAL INTEREST ON THE SECURITY DEPOSIT IGNORING THE FACT THAT THE AS SESSING OFFICER HAS CORRECTLY DETERMINED THE ANNUAL VALUE OF THE PROPER TY U/S 23(1)(A) OF THE INCOME TAX ACT 1961 BY ADDING NOTIONAL INTERES T ON ADVANCE RENT RECEIVED AND INTEREST ON SECURITY DEPOSIT THAT BEI NG ESSENTIAL COMPONENT FOR ARRIVING AT SUCH ANNUAL VALUE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DECIDING THE ISSUE IN F AVOUR OF THE 2 ASSESSEE IGNORING THE FACT THAT THE DECISION GIVEN BY THE LD. CIT(A) ON THE SAME ISSUE IN THE EARLIER YEARS HAS NOT BEEN AC CEPTED BY THE DEPARTMENT AND FURTHER APPEAL HAS BEEN FILED TO THE HONBLE ITAT. 2. SHRI JITENDRA YADAV LEARNED DR SUBMITTED THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE EARLIER ASSESSMENT YEARS HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WHILE DOING SO SHRI YADAV VEHEMEN TLY CONTENDED THAT THE TRIBUNAL WRONGLY DEFERRED FROM THE BINDING JUDGMENT OF THE THIRD MEMBER IN THE CASE OF ITO VS. BAKER TECHNICAL SERVICES (P) LTD. 31 DTR 1. HE SUBMITTED THAT THE TRIBUNAL WRONGLY PLACED RELIANCE ON THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF SHIELA KAUSHIK VS. CIT 131 ITR 435 FOR THE REASON THAT THE HONBLE SUPREME COURT WAS CONSIDERING THE SITUATION PRIOR TO 1 ST APRIL 1976. HE SUBMITTED THAT THERE WAS AN AMENDMENT TO THE ACT S UBSEQUENT TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE SHEILA KAUSHI K (SUPRA). SIMILARLY HE SUBMITTED THAT THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF DEWAN DAULAT RAI VS. NEW DELHI MUNICIPAL COMMITTEE AND ANOTHER 122 I TR 700 ALSO PERTAINS TO THE ASSESSMENT YEAR PRIOR TO THE AMENDMENT BROUGHT INTO SECTION 23. HE FURTHER POINTED OUT THAT IN THE CASE OF BAKER TECHNICAL SERVICES T HE THIRD MEMBER DID RECOGNIZE THE CHANGE IN LAW AND HAS CLEARLY STATED THAT THE D ECISIONS OF THE APEX COURT IN THE CASE OF SHEILA KAUSHAK AS WELL IN THE CASE OF DEWAN DAULAT RAI CANNOT BE FOLLOWED. HE FURTHER POINTED OUT THAT THE TRIBUNAL COMMITTED AN ERROR IN FOLLOWING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE O F M.V. SONAWALA VS. CIT 177 ITR 246 AND IN THAT CASE ALSO THE ASSESSMENT YEARS IN QUESTION WERE ASSESSMENT YEARS 1968-69 TO 1970-71. REFERRING TO THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF SMITABEN N. AMBANI VS. CWT 323 ITR 104 (BOM.) THE LEARNED DR SUBMITTED THAT IT WAS A CASE UNDER WEALTH-TAX ACT A ND HAS NO REFERENCE TO SECTION 23(1)(A). HE POINTED OUT THAT THE JURISDICTIONAL HI GH COURT IN THE CASE J.K. 3 INVESTORS HAS REPEATEDLY STATED THAT THE ISSUE WHE THER NOTIONAL INTEREST COULD FORM PART OF THE FAIR RENT U/S 23(1)(A) IS NOT DECIDED. MR. YADAV POINTED OUT THAT THIS IS NOT A CASE WHERE PROPERTY IS UNDER THE RENT CONTROL REGULATION AND HENCE QUESTION OF FIXING STANDARD RENT DOES NOT ARISE. FURTHER HE POINTED OUT THAT THE TRIBUNAL HAS COMMITTED A MISTAKE WHILE RECORDING THE FACTS AND F IGURES IN THE CASE OF FIZZ DRINKS LTD. AT PAGE 11 OF THE ORDER. IN SHORT MR. YADAV ARGUES THAT THE JUDGMENT OF THE TRIBUNAL IN ITA NOS.1411/MUM/2007 AND ITA NO . 1413/MUM/2007 IN THE CASE OF DCIT VS. RECLAMATION REALITY INDIA PVT. LTD . AND OTHERS D-BENCH ORDER DATED 26 TH NOV. 2010 WAS PASSED BY DEFERRING WITH A VIEW TA KEN BY THE THIRD MEMBER AND ALSO BY APPLYING THE CASE LAWS WHICH ARE NOT RELEVANT TO THE LAW AS IT STAND ON THIS DATE. THUS HE PRAYED THAT THE ORDER O F THE CIT(APPEALS) BE REVERSED AND THAT OF THE AO BE RESTORED. 3. SMT. AARTI VISSANJI LEARNED COUNSEL FOR THE ASS ESSEE RELIED ON THE ORDER OF THE TRIBUNAL AND SUBMITTED THAT THE SAME SHOULD BE FOLLOWED AS THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LEA RNED COUNSEL POINTED OUT THAT AS FAR AS SECTION 23(1)(A) IS CONCERNED THE SECTION A ND THE WORDING THEREIN HAS NOT CHANGED SINCE THE INCEPTION OF THE ACT IN THE YEAR 1961. SHE POINTS OUT THAT SUB- SECTION (B) WAS INTRODUCED TO SECTION 23(1) IN THE YEAR 1976 AND ITS CHANGE DOES NOT EFFECT SECTION 23(1)(A). THE LEARNED COUNSEL POINTE D OUT THAT NUMBER OF COURTS AND THE TRIBUNAL HAVE INTERPRETED SECTION 23(1)(A) AND THIS BENCH HAD CONSIDERED ALL THOSE DECISIONS AND HAS COME TO A CONCLUSION THAT T HE ANNUAL LETTING VALUE SHOULD BE THE ANNUAL VALUE DETERMINED BY THE MUNICIPAL AUT HORITIES IN RESPECT OF THE PROPERTY. SHE SUBMITTED THAT IN THIS CASE THE RENT RECEIVED BY THE ASSESSEE IS IN EXCESS TO THE RATABLE VALUE/ANNUAL VALUE DETERMINED BY THE MUNICIPAL CORPORATION AND HENCE SECTION 23(1)(B) COMES INTO PLAY. ONCE 23 (1)(B) COMES INTO PLAY SHE SUBMITTED THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. 4 J.K. INVESTORS (BOMBAY) LTD. 248 ITR 723 (BOM.) APP LIES AND THIS IS WHAT THE TRIBUNAL DID AT PARA 25 OF THE ORDER. SHE POINTED O UT THAT THE THIRD MEMBERS ORDER IN THE CASE OF ITO VS. BEKAR TECHNICAL SERVICES PVT . LTD. 126 TTJ (TM) 453 WAS AGAINST THE JUDGMENT OF THE JURISDICTIONAL HIGH COU RT IN THE CASE OF M.V. SONAWALA AND UNDER THOSE CIRCUMSTANCES THE DIVISION BENCH C OULD NOT FOLLOW THE THIRD MEMBERS ORDER IN PREFERENCE TO THAT OF THE JURISDI CTIONAL HIGH COURT. SHE SUBMITTED THAT THERE IS NO INFIRMITY IN THE VIEW TA KEN BY THE TRIBUNAL. 4. EVEN OTHERWISE SMT. AARTI VISANJI ARGUED THAT THE DEPOSIT IS TAKEN BY THE ASSESSEE TOWARDS SECURITY AS THE MARKET VALUE OF TH E PROPERTIES ARE VERY HIGH AND THE ASSESSEE WOULD NOT HAVE ANYTHING TO FALL BACK U PON IN CASE THE TENANTS DEFAULTS ON PAYMENT OF RENT OR REFUSES TO VACATE. SHE SUBMIT TED THAT THE INCOME EARNED ON THAT DEPOSIT BY WAY OF INTEREST OR OTHERWISE IS AL WAYS LIABLE TO TAX AND THAT THERE IS NO PROVISION IN LAW TO TAX SUCH INCOME UNDER THE HE AD INCOME FROM HOUSE PROPERTY BY NOTIONALLY TREATING SUCH INCOME AS INC OME FROM HOUSE PROPERTY. SHE RELIED ON THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PRABHABATI BANSALI 141 ITR 419. SHE ALSO RELIED ON THE CIRCULA R OF THE BOARD NO. 204 DATED 24 TH JULY 1976 REPORTED IN 110 ITR STATUTE 26 AT PARA 9 AND SUBMITTED THAT THE CIRCULAR HAS BEEN CONSIDERED BY THE BENCH AND THE H EADING ITSELF SUGGESTS THAT ANNUAL VALUE IS EQUIVALENT TO THE MUNICIPAL VALUATI ON OF THE PROPERTY. SHE PRAYED FOR RELIEF. 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D WE HOLD AS FOLLOWS. 6. THE UNDISPUTED FACT IN THIS CASE IS THAT THE ACT UAL RENT RECEIVED BY THE ASSESSEE IS IN EXCESS OF THE RATABLE VALUE/ANNUAL VALUE DETERMINED BY THE 5 MUNICIPAL CORPORATION. THE ISSUE IS WHETHER THE ANN UAL VALUE/RATABLE VALUE DETERMINED IN MUNICIPAL VALUATION CAN BE DEEMED TO BE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PRABHBAT I BANSALI (SUPRA) HELD AS FOLLOWS : THE ASSESSEE WAS THE OWNER OF ONE-EIGHTH SHARE OF A HOUSE PROPERTY IN BOMBAY WHICH WAS PARTLY IN THE OCCUPATION OF TENANT S AND PARTLY IN THE OCCUPATION OF LICENSEES UNDER A LEAVE AND LICENCE A GREEMENT. THE TENANTS PAID A RENT OF RS.86 036 FOR AN AREA OF 19 787 SQ.F T. OCCUPIED BY THEM WHEREAS THE LICENSEES PAID RS.1 58 511 AS LICENCE F EE FOR AN AREA OF 11 159 SQ.FT. OCCUPIED BY THEM. THE ITO SOUGHT TO TREAT TH E ACTUAL AMOUNT RECEIVED AS THE ANNUAL VALUE OF THE BUILDING. THE ASSESSEE C LAIMED THAT THE ANNUAL VALUE OF THE PROPERTY SHOULD BE DETERMINED NOT WITH REFERENCE TO THE ANNUAL RECEIPTS BUT SHOULD BE CALCULATED ON THE BASIS OF T HE RENT PAID BY THE TENANTS BUT THIS WAS NOT ACCEPTED BY THE ITO. THE TRIBUNAL DIRECTED THE ITO TO DETERMINE THE PROPERTY INCOME ON THE BASIS OF ITS A NNUAL VALUE WITH REFERENCE TO THE RATABLE VALUE AS DETERMINED BY THE MUNICIPAL CORPORATION. ON A REFERENCE : HELD THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING TH AT THE AGGREGATE AMOUNT RECEIVABLE FROM THE TENANTS IN OCCUPATION UNDER REG ULAR TENANCY AGREEMENTS AND PARTLY FROM LICENSEES IN OCCUPATION UNDER THE L EAVE AND LICENCE SYSTEM COULD NOT BE TAKEN AS THE ANNUAL VALUE OF THE PROPE RTY. THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ITO TO DETERMINE THE ANN UAL VALUE OF THE PROPERTY AFRESH WITH REFERENCE TO ITS RATABLE VALUE AS DETER MINED BY THE MUNICIPAL CORPORATION. THIS JUDGMENT WAS FOLLOWED BY THE JURISDICTIONAL HI GH COURT IN THE CASE OF M.V. SONAWALA 177 ITR 246 (BOM.) WHERE AT PARA 5 IT IS H ELD AS FOLLOWS : 6 5. IN THIS CONTEXT IT MAY BE DESIRABLE TO REFER T O THE CALCUTTA HIGH COURTS DECISION IN THE CASE OF CIT VS. PRABHABATI BANSAL (1982) 29 CTR (CAL.) 15: (1983) 141 ITR 419 (CAL.). ONE OF THE QU ESTIONS INVOLVED IN THAT CASE WAS WHETHER THE TRIBUNAL WAS JUSTIFIED IN DIRE CTING THE ITO TO REDETERMINE THE ANNUAL VALUE OF THE PROPERTY UNDER S. 23(1) AFRESH WITH REFERENCE TO ITS RATEABLE VALUE AS DETERMINED BY TH E MUNICIPAL CORPORATION. THE QUESTION WAS ANSWERED IN THE AFFIRMATIVE AND TH E COURT HELD THAT THE INCOME FROM HOUSE PROPERTY HAD TO BE COMPUTED ON TH E BASIS OF THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE LET FROM YEA R TO YEAR OR AND THE ANNUAL MUNICIPAL VALUE. 7. THE WORDING IN SECTION 23(1)(A) HAS NOT CHANGED FROM THE YEAR 1961. THUS THE PLEA THAT DUE TO SUBSEQUENT AMENDMENTS THE JUD GMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M.V. SONAWALA IS NOT BIND ING IS DEVOID OF MERIT. WHEN THERE IS A JURISDICTIONAL HIGH COURT JUDGMENT THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR HAS RIGHTLY FO LLOWED THE SAME. THUS UNDER SECTION 23(1)(A) THE ANNUAL VALUE AS DETERMINED IN MUNICIPAL VALUATION IS TO BE CONSIDERED AS THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET OUT FROM YEAR TO YEAR. AS THE ANNUAL RENTAL VALUE I S LESS THAN THE ACTUAL RENT RECEIVED SECTION 23(1)(B) COMES INTO OPERATION IN THIS CASE. THUS NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT/RENT RE CEIVED IN ADVANCE CANNOT BE ADDED TO THE RENT RECEIVED ON A NOTIONAL BASIS I N VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVES TORS (BOMBAY) LTD. (SUPRA) WHICH IS CONFIRMED BY THE HONBLE SUPREME COURT. IT IS NOBODIES CASE THAT RENT CONTROL REGULATION APPLIES. 8. IN VIEW OF THE ABOVE DISCUSSION WE SEE NO REASO N TO DEVIATE FROM THE DECISION OF THE COORDINATE BENCH ON THE VERY SAME I SSUE IN ASSESSEES OWN CASE. WE RESPECTFULLY FOLLOW THE SAME AND DISMISS THIS AP PEAL OF THE REVENUE. 7 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY 2011. SD/- SD/- (V. DURGA RAO)) (J. SUDHAK AR REDDY) JUDICIAL MEMBER. A CCOUNTANT MEMBER MUMBAI DATED: 28 TH JANUARY 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR D-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRA R ITAT MUMBAI BENCHES MUMBAI.