DCIT CEN CIR 20, MUMBAI v. SUMAN P. KHURANA, MUMBAI

ITA 4796/MUM/2010 | 2007-2008
Pronouncement Date: 29-07-2011 | Result: Allowed

Appeal Details

RSA Number 479619914 RSA 2010
Assessee PAN AAHPK0190Q
Bench Mumbai
Appeal Number ITA 4796/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 19 day(s)
Appellant DCIT CEN CIR 20, MUMBAI
Respondent SUMAN P. KHURANA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted F
Tribunal Order Date 29-07-2011
Assessment Year 2007-2008
Appeal Filed On 10-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F BENCH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER & SMT. ASHA VIJAY RAGHAVAN JUDICIAL MEMBER I.T.A.NO.4796/MUM/2010 A.Y 2007-08 ASST. COMMISSIONER OF I.T. CENTRAL CIRCLE 15 & 16 MUMBAI. VS. SMT. SUMAN P. KHURANA 501 RAHEJA CENTRE FREE PRESS JOURNAL MARG NARIMAN POINT MUMBAI 400 021. PAN: AAHPK 0190 Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K.GUPTA SR. AR RESPONDENT BY : SHRI SHEKHAR GUPTA. DATE OF HEARING: 25/7/2011 DATE OF PRONOUNCEMENT: 29/7/2011. O R D E R PER T.R.SOOD AM: IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING G ROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.12 32 5 98/- MADE TO THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE ADDITION WAS MADE ON CONJECTURES AND SURMISES WITHOUT APPRECIATING THE FACT THAT THE AO HAD ESTIMATED THE FAIR MARKET VALUE OF THE SAID PREMISES ON CONCR ETE REASONABLE BASIS I.E. RENTAL VALUE OF NEARBY PREMISES IN THE S AME CO-OPERATIVE HOUSING SOCIETY AND HAD APPLIED THE PROVISIONS OF S ECTION 23[1][A] CORRECTLY. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS AO FOLLOWING THE EARLIER YEARS ASSESSM ENT ORDER IN A.Y 2006-07 OBSERVED THAT ASSESSEE HAS SHOWN GROSS RENT AT RS.19 89 488/- FROM MAKER CHAMBERS VI PROPERTY AS A GAINST RS.34 22 475/- SHOWN AS RECENT RECEIPT IN A.Y 2003- 04. AO FURTHER NOTED THAT ASSESSEE HAD RECEIVED INTEREST FREE SECU RITY FROM THE ITA NO.4796/M/10 2 PERSONS TO WHOM PREMISES WERE LET OUT. THEREFORE H E RAISED A QUERY THAT WHY INTEREST ON SUCH INTEREST FREE SECURITY SH OULD NOT BE CONSTRUED AS RENTAL INCOME. IN RESPONSE IT WAS STA TED BY THE ASSESSEE VIDE LETTER DATED 11-11-07 AS UNDER: YOUR GOOD SELF HAS RAISED A QUERY REGARDING NOTION AL INTEREST ON ACCOUNT OF INTEREST FREE SECURITY DEPOSIT TO FORM P ART OF RENT. IN THIS CONNECTION WE HAVE TO SUBMIT THAT NO NOTIONAL INTER EST SHOULD BE TAKEN AS RENT. AO AFTER EXAMINATION OF THE SUBMISSIONS NOTED THAT ASSESSEE HAS SHOWN RENT FROM THE SAID PREMISES IN EARLIER YEARS AS UNDER: A.Y AMOUNT OF RENT ON OFFICE PREMISES AMOUNT OF RENT ON CAR PARKING 2000-01 33 39 000 1 20 000 2001-02 33 39 000 1 20 000 2002-03 33 39 000 1 20 000 2003-04 34 22 475 1 20 000 2004-05 19 89 488 1 20 000 2005-06 15 26 400 1 20 000 2006-07 30 52 800 1 20 000 THE AO FURTHER CONDUCTED ENQUIRY FROM THE SOCIETY A ND NOTED THAT PREVAILING RENT WAS IN THE BUILDING RANGING BETWEEN RS.172 TO RS.175/- WHEREAS IN THE RELEVANT YEAR ASSESSEE HAD SHOWN MUC H LESS RENT. AFTER THIS DISCUSSION AO ADOPTED THE RENTAL VALUE OF RS. 33 42 816/- AS ANNUAL VALUE U/S.23[1][A]. 3. ON APPEAL THE LD. CIT(A) FOLLOWING THE EARLIER YEARS ORDER HELD THAT THE AO SHOULD ACCEPT THE RENTAL INCOME DECLARE D BY THE ASSESSEE. 4. BEFORE US LD. DR SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED RECENTLY BY THE FULL BENCH OF THE HON'BLE DELHI HIG H COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA [323 ITR 38] AND IT WAS ULTIMATELY HELD THAT AO HAD THE RIGHT TO DETERMINE THE FAIR RENT. ITA NO.4796/M/10 3 5. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN ASSE SSEES OWN CASE FOR A.YRS.2004-05 TO 2006-07 AND THE SAME WAS RESTORED BACK TO THE FILE OF THE AO WHEREIN IT WAS HELD THAT FAIR MARKET RENT U/S.23[1][A] SHOULD BE RESTRICTED TO MUNICIPAL VALUE AND THEREFORE IN THIS YEAR ALSO THE MATTER MAY BE RESTORED TO THE FILE OF THE AO WITH S IMILAR DIRECTIONS. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THE FULL BENCH OF THE HON'BLE DELHI HIGH COURT HAS CLEARLY HELD IN THE CASE OF CIT VS. MONI KUMAR SUBBA [SUPRA] THAT THOUG H NOTIONAL INTEREST FROM INTEREST FREE SECURITIES COULD NOT BE ADDED TO THE ANNUAL VALUE U/S.23[1][B] BUT AT THE SAME TIME AO HAS THE RIGHT TO DETERMINE THE FAIR RENT. 7. THE RELEVANT PORTIONS OF THE DECISION OF DELHI H IGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA [SUPRA] ARE AS UND ER: WE APPROVE THE AFORESAID VIEW OF THE DIVISION BENC H OF THIS COURT AND THE OPERATIVE WORDS IN SECTION 23(1)(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. T HUS IF HE FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE 'FAIR/MA RKET RENT' BECAUSE OF THE REASON THAT THE ASSESSEE HAS RECEIVED ABNORMAL LY HIGH INTEREST-FREE SECURITY DEPOSIT AND BECAUSE OF THAT REASON THE A CTUAL 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 THE DETERMINATIVE FACTOR TO ARRIVE AT A 'F AIR RENT'. THE PROVISIONS OF SECTION 23(1)(A) DO NOT MANDATE THIS. THE DIVISION BENCH IN ASIAN HOTELS LIMITED [2010] 323 ITR 490 (DELHI) THUS RIGHTLY OBSERVED THAT IN A TAXING STATUTE IT WOULD BE UNSA FE FOR THE COURT TO GO BEYOND THE LETTER OF THE LAW AND TRY TO READ INTO THE PROVISION MORE THAN WHAT IS ALREADY PROVIDED FOR. WE MAY ALSO REC ORD THAT EVEN THE BOMBAY HIGH COURT IN THE CASE OF CIT V. J. K. INVE STORS (BOMBAY) LTD. [2001] 248 ITR 723 (BOM) CATEGORICALLY REJECT ED THE FORMULA OF ADDITION OF NOTIONAL INTEREST WHILE DETERMINING TH E 'FAIR RENT' IN THE FOLLOWING MANNER (PAGE 727) : ITA NO.4796/M/10 4 'BEFORE CONCLUDING WE MAY POINT OUT THAT UNDER SECT ION 23(1)(B) THE WORD `RECEIVABLE' DENOTES PAYMENT OF ACTUAL ANNUAL RENT TO THE ASSESSEE. HOWEVER IF IN A GIVEN YEAR A PORTION OF THE ACTUAL ANNUAL RENT IS IN ARREARS IT WOULD STILL COME WITHIN SECT ION 23(1)(B) AND IT IS FOR THIS REASON THAT THE WORD `RECEIVABLE' MUST BE READ IN THE CONTEXT OF THE WORD `RECEIVED' IN SECTION 23(1)(B). IN THE LIG HT OF THE ABOVE INTERPRETATION NOTIONAL INTEREST CANNOT FORM PART OF THE ACTUAL RENT AS CONTEMPLATED BY SECTION 23(1)(B) OF THE ACT. WE ONC E AGAIN REPEAT THAT WHETHER SUCH NOTIONAL INTEREST COULD FORM PART OF T HE FAIR RENT UNDER SECTION 23(1)(A) IS EXPRESSLY LEFT OPEN.' SINCE THE PROVISIONS OF FIXATION OF ANNUAL RENT UND ER THE DELHI MUNICIPAL CORPORATION ACT ARE IN PARI MATERIA WITH SECTION 23 OF THE ACT WE ARE INCLINED TO ACCEPT THE AFORESAID VIEW OF THE CALCUTTA HIGH COURT IN SATYA CO. LTD. [1997] 140 CTR (CAL) 569 T HAT IN SUCH CIRCUMSTANCES THE ANNUAL VALUE FIXED BY THE MUNIC IPAL AUTHORITIES CAN BE A RATIONAL YARDSTICK. HOWEVER IT WOULD BE SUBJE CT TO THE CONDITION THAT THE ANNUAL VALUE FIXED BEARS A CLOSE PROXIMITY WITH THE ASSESSMENT YEAR IN QUESTION IN RESPECT OF WHICH THE ASSESSMENT IS TO BE MADE UNDER THE INCOME-TAX LAWS. IF THERE IS A CHANGE IN CIRCUM STANCES BECAUSE OF PASSAGE OF TIME VIZ. THE ANNUAL VALUE WAS FIXED B Y THE MUNICIPAL AUTHORITIES MUCH EARLIER IN POINT OF TIME ON THE BA SIS OF RENT THAN RECEIVED THIS MAY NOT PROVIDE A SAFE YARDSTICK IF IN THE ASSESSMENT YEAR IN QUESTION WHEN ASSESSMENT IS TO BE MADE UNDE R THE INCOME-TAX ACT THE PROPERTY IS LET OUT AT A MUCH HIGHER RENT. THUS THE ASSESSING OFFICER IN A GIVEN CASE CAN IGNORE THE MUNICIPAL VA LUATION FOR DETERMINING ANNUAL LETTING VALUE IF HE FINDS THAT T HE SAME IS NOT BASED ON THE RELEVANT MATERIAL FOR DETERMINING THE 'FAIR RENT' IN THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAK ING A DIFFERENT VALUATION. WE MAY PROFITABLY REPRODUCE THE FOLLOWING OBSERVA TIONS OF THE SUPREME COURT IN THE CASE OF CORPORATION OF CA LCUTTA V. SMT. PADMA DEBI AIR 1962 SC 151 153. 'A BARGAIN BETWEEN A WILLING LESSOR AND A WILLING L ESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES MAY AFFORD A GUIDIN G TEST OF REASONABLENESS. AN INFLATED OR DEFLATED RATE OF REN T BASED UPON FRAUD EMERGENCY RELATIONSHIP AND SUCH OTHER CONSIDERATIO NS MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS.' THUS THE RATEABLE VALUE IF CORRECTLY DETERMINED U NDER THE MUNICIPAL LAWS CAN BE TAKEN AS ALV UNDER SECTION 23(1)(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 V ALUE IS NOT BINDING ON THE ASSESSING OFFICER. IF THE ASSESSING OFFICER CAN SHOW THAT RATEABLE VALUE UNDER MUNICIPAL LAWS DOES NOT REPRES ENT THE CORRECT FAIR RENT THEN HE MAY DETERMINE THE SAME ON THE BASIS O F MATERIAL/EVIDENCE PLACED ON RECORD. THIS VIEW IS FORTIFIED BY THE DE CISION OF THE PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARUKA V. CIT [1975] 101 ITR 810. THE ABOVE DISCUSSION LEADS TO THE FOLLOWING CONCLUS IONS: ITA NO.4796/M/10 5 (I) ALV WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLU ENCED BY ANY EXTRANEOUS CIRCUMSTANCES. (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEO US CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. (III) ACTUAL RENT RECEIVED IN NORMAL CIRCUMSTANCES WOULD BE RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED/DEFLATED BY RE ASON OF EXTRANEOUS CONSIDERATION. (IV) SUCH ALV HOWEVER CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LEGISLATION APPLICABLE TO THE PROPERTY . (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER THEN IT IS THE DUTY OF THE ASSESSING OFFICER TO DETERMINE THE STANDARD RENT AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UPPER LIMIT IF THE F 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. WE MAY ALSO ADD THAT IN PLACE LIKE DELHI THIS HAS NOW BECOME REDUNDANT INASMUCH AS THE VERY BASIS OF FIXING PROP ERTY TAX HAS UNDERGONE A TOTAL CHANGE WITH AMENDMENT OF THE MUNI CIPAL LAWS BY THE AMENDMENT ACT 2003. NOW THE PROPERTY TAX IS ON UNI T METHOD BASIS. (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER THEN IT IS THE DUTY OF THE ASSESSING OFFICER TO DETERMINE THE STANDARD RENT AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UPPER LIMIT IF THE F 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. WE MAY ALSO ADD THAT IN PLACE LIKE DELHI THIS HAS NOW BECOME REDUNDANT INASMUCH AS THE VERY BASIS OF FIXING PROP ERTY TAX HAS UNDERGONE A TOTAL CHANGE WITH AMENDMENT OF THE MUNI CIPAL LAWS BY THE AMENDMENT ACT 2003. NOW THE PROPERTY TAX IS ON UNI T METHOD BASIS. WE WOULD LIKE TO REMARK THAT STILL THE QUESTION REM AINS AS TO HOW TO DETERMINE THE REASONABLE/FAIR RENT. IT HAS BEEN IND ICATED BY THE SUPREME COURT THAT EXTRANEOUS CIRCUMSTANCES MAY INF LATE/DEFLATE THE 'FAIR RENT'. THE QUESTION WOULD THEREFORE BE AS T O WHAT WOULD BE CIRCUMSTANCES WHICH CAN BE TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER WHILE DETERMINING THE FAIR RENT. IT IS NOT NECESSARY FOR US TO GIVE ANY OPINION IN THIS BEHALF AS WE ARE NOT CALLED UP ON TO DO SO IN THESE APPEALS. HOWEVER WE MAY OBSERVE THAT NO PARTICULAR TEST CAN BE LAID DOWN AND IT WOULD DEPEND ON THE FACTS OF EACH CASE. WE WOULD DO NOTHING MORE THAN TO EXTRACT THE FOLLOWING PASSAGE FROM THE SUPREME COURT JUDGMENT IN THE CASE OF MOTICHAND HIRACHAND V. BOMBAY MUNICIPAL CORPORATION AIR 1968 SC 441 442 : 'IT IS WELL-RECOGNIZED PRINCIPLE IN RATING THAT BOT H GROSS VALUE AND NET ANNUAL VALUE ARE ESTIMATED BY REFERENCE TO THE RENT AT WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM Y EAR TO YEAR. VARIOUS METHODS OF VALUATION ARE APPLIED IN ORDER T O ARRIVE AT SUCH HYPOTHETICAL RENT FOR INSTANCE BY REFERENCE TO TH E ACTUAL RENT PAID FOR THE PROPERTY OR FOR OTHERS COMPARABLE TO IT OR WHER E THERE ARE NO RENTS BY REFERENCE TO THE ASSESSMENTS OF COMPARABLE PROPE RTIES OR TO THE PROFITS EARNED FROM THE PROPERTY OR TO THE COST OF CONSTRUCTION.' ITA NO.4796/M/10 6 THE ABOVE PARAS AND PARTICULARLY THE HIGHLIGHTED PO RTIONS CLEARLY SHOW THAT AO HAS RIGHT TO DETERMINE THE FAIR GAIN IN TER MS OF SEC.23[1][A] AND IF SAME HAS BEEN SUPPRESSED THEN SUCH RENT CAN BE INCREASED BY BRINGING RELEVANT MATERIAL ON RECORD BUT NO ADDITIO N CAN BE MADE MERELY ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE SECURITIES. WE FURTHER FIND THAT IN ASSESSEES OWN CASE FOR THE A. YRS. 2004-05 TO 2006- 07 IN I.T.A.NOS.60 TO 61/MUM/2009 THE MATTER WAS RE STORED BY THE TRIBUNAL TO THE FILE OF THE AO WITH DETAILED DIRECT IONS AND IT WAS ALSO OBSERVED THAT ANNUAL VALUE U/S.23[1][A] HAS TO BE R ESTRICTED TO THE MUNICIPAL VALUE. BUT NOW THE DECISIONS WHICH WERE R ELIED ON BY THE TRIBUNAL HAVE BEEN CONSIDERED BY THE FULL BENCH OF THE HON'BLE DELHI HIGH COURT AND IT HAS BEEN HELD THAT GENERAL MUNICI PAL VALUE SHOULD BE CONSIDERED AS ANNUAL VALUE U/S.23[1][A]. BUT IF THE SAME IS NOT RELEVANT THEN AO HAS THE POWER TO DETERMINE THE FAIR RENT. T HEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF THE AO WITH A DIRECTION TO RE-EXAMINE THE ISSUE IN THE LIGHT OF FULL BENCH DECISION OF THE HON'BLE DELHI HIGH COURT IN T HE CASE OF CIT VS. MONI KUMAR SUBBA [SUPRA]. 8. IN THE RESULT REVENUES APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 29/7/2011. SD/- SD/- (ASHA VIJAY RAGHAVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 29/7/2011. P/-*