SONALI CHETAN SHAH, MUMBAI v. ITO WD 16(2)(1), MUMBAI

ITA 6631/MUM/2009 | 2004-2005
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 663119914 RSA 2009
Assessee PAN AABPK5662K
Bench Mumbai
Appeal Number ITA 6631/MUM/2009
Duration Of Justice 1 year(s) 6 month(s) 15 day(s)
Appellant SONALI CHETAN SHAH, MUMBAI
Respondent ITO WD 16(2)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 15-07-2011
Date Of Final Hearing 12-07-2011
Next Hearing Date 12-07-2011
Assessment Year 2004-2005
Appeal Filed On 30-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.6631/MUM /2009 (ASSESSMENT YEAR: 2004-05) SONALI CHETAN SHAH. 4 TH FLR. NATIONAL GARAGE BUILDING BHULABHAI DESAI ROAD MUMBAI -400 026 ....... APPELLANT VS ITO 16(2)(1) MATRUMANDIR TARDEO ROAD MUMBAI -400 070 ..... RESPONDENT PAN: AABPK 5662 K APPELLANT BY: SHRI SAMEER DALAL RESPONDENT BY: SHRI M.R. KUBAL O R D E R PER R.S. PADVEKAR JM IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT (A)-27 MUMBAI DATED 20.10.2009 FOR T HE A.Y. 2004-05. THE FIRST ISSUE IS IN RESPECT OF DETERMINING OF THE ANNUAL LETTING VALUE (ALV) OF THE ASSESSEES FLAT AT RS 4 15 560/- AND T HIS ISSUE ARISES FROM GROUND NOS.1.1 TO 1.3. 2. WE HAVE HEARD THE PARTIES. THE SHORT CONTROVER SY IS WHETHER THE NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEPOSIT OF RS 80 LAKHS CAN BE CONSIDERED WHILE DETERMINING THE ALV I N RESPECT OF THE FLAT LET-OUT AS PER THE LEAVE AND LICENSE AGREEMENT TO M/S. MCKINSEY ITA 6631/MUM/2009 SONALI CHETAN SHAH 2 & COMPANY. THE A.O. WAS OF THE OPINION THAT THE IN TEREST FREE DEPOSIT OF RS 80 LAKHS TAKEN BY THE ASSESSEE FROM THE LICEN SEE IS NOT A DEPOSIT TAKEN AS A MAJOR OF SECURITY BUT IT IS PART OF THE ARRANGEMENT OR COLOURABLE DEVICE USED BY THE ASSESSEE TO AVOID THE TAX BY SHOWING THE LOWER RENT. INTEREST FREE DEPOSIT ACCEPTED BY THE ASSESSEE WAS INVESTMENT IN THE TAX-FREE 8.5%- GOVERNMENT RELIEF BOND (NON- CUMULATIVE) SCHEME 2001. THE A.O. ALSO REFER TO CL AUSE NO.5 OF THE LEAVE AND LICENSE AGREEMENT WHICH PROVIDES FOR PAYM ENT OF DAMAGES/ MENSE PROFIT OF RS 1 LAKH PER MONTH IF THE PREMISES ARE NOT HAN DED OVER TO THE LICENSEE ON THE EXPIRY. THE A.O. WAS T HEREFORE OF THE OPINION THAT THE PROCEEDS OF THE RENT DECLARED BY THE ASSESSEE WAS NOT CORRECT U/S.23(1)(B) AND THE SAID RENT WAS LOWE R THAN FAIR MARKET VALUE AS PER SECTION 23(1)(A) OF THE ACT. THE A.O. THEREFORE DETERMINED FAIR RENT OF THE SAID FLAT U/S.23(1)(A) OF THE I.T. ACT AFTER CONSIDERING THE COMPENSATION CLAUSE IN THE LEAVE AN D LICENSE AGREEMENT THAT PROVIDES FOR PAYMENT OF RS 1 LAKH IN CASE THE POSSESSION OF THE PREMISES IS NOT GIVEN. THE A.O. ALSO CONSIDERED THE INTEREST EARNED BY THE ASSESSEE @ 8.5% FROM THE INV ESTMENT MADE AS IN THE GOVERNMENT RELIEF BOND (NON-CUMULATIVE SCHEM E 2001) BY TAKING THE INTEREST FREE DEPOSIT OF RS 80 LAKHS. T HOUGHT THE A.O. HAS DISCUSSED NOTIONAL INTEREST FOR DETERMINING THE ALV U/S.23(1)(A) BUT FINALLY PROCEEDED TO DETERMINE THE FAIR RENT AS PER THE CLAUSE 5 OF THE LEAVE AND LICENSE AGREEMENT AND FINALLY DETERMINED THE GROSS RENTAL ANNUAL RENTAL VALUE AT RS 12 LAKHS. THE LD. CIT (A ) WAS OF THE OPINION THAT THE DAMAGE CLAUSE CANNOT BE THE DECISIVE TO DE TERMINE ANNUAL LETTING VALUE BUT THE INTEREST EARNED/RECEIVABLE FR OM GOVERNMENT BONDS WHICH ARE PURCHED OUT OF THE INTEREST FREE D EPOSIT WHICH WORKED OUT TO RS 6 80 000/- SHOULD BE CONSIDERED FO R DETERMINING THE ALV UNDER SEC. 23(1)(I) AND HENCE THE ANNUAL VALU E (ALV) SHOULD BE TOTAL OF LICENSE FEE + INTEREST ELEMENT WHICH WORK S OUT TO RS 10 95 560/-. ACCORDINGLY THE LD. CIT (A) RESTRICTE D THE ADDITION TO RS 10 95 560/- AS AGAINST RS 12 LAKHS. NOW THE ASSES SEE IS IN APPEAL BEFORE US. ITA 6631/MUM/2009 SONALI CHETAN SHAH 3 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. SO FAR AS THE TREATMENT OF THE INTEREST FREE DEPOSIT TAKEN BY THE LANDLORD/ LICENSOR THE ISSUE HAS BEEN DECIDED BY THE HONBLE HIGH COURT OF DELHI (FULL BENCH) IN THE CASE OF CIT VS. MONI KUMA R SUBBA 333 ITR 38. THE QUESTION OF LAW BEFORE THE HONBLE HIGH CO URT WAS WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS CORRECT IN LA W IN HOLDING THAT NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEP OSIT CAN NOT BE CONSIDERED FOR DETERMINING FAIR RENTAL VALUE OF HOU SE PROPERTY UNDER THE INCOME-TAX ACT. THE HONBLE HIGH COURT ALSO LAI D DOWN CERTAIN GUIDELINES AS UNDER:- 18. ..(I) ALV WOULD BE THE SUM AT WHICH THE PROPER TY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILL ING LESSEE UNINFLUENCED 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 A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED / D EFLATED BY REASON 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 REN T CONTROLLER THEN IT IS THE DUTY OF THE ASSESSING OF FICER TO DETERMINE THE STANDARD RENT AS PER THE PROVISIONS O F RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UP PER LIMIT IF THE FAIR RENT IS LESS THAN THE STANDARD RENT TH EN IT IS THE ITA 6631/MUM/2009 SONALI CHETAN SHAH 4 FAIR RENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. 4. IT IS FURTHER HELD THAT THE NOTIONAL INTEREST C ANNOT BE CONSIDERED AS THE INTEREST FREE DEPOSIT FOR DETERMINING THE AN NUAL LETTING VALUE U/S.23(1)(A) OF THE ACT. WE THEREFORE DIRECT THE A.O. NOT TO INCLUDE NOTIONAL INTEREST OR INTEREST RECEIVABLE BY THE ASS ESSEE FROM THE INVESTMENT IN THE GOVERNMENT BONDS FOR DETERMINING ANNUAL LETTING VALUE U/S.23(1)(A) OF THE ACT. AT THE SAME TIME B OTH THE PARTIES AGREED THAT THE MATTER MAY BE SENT BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN THE LIGHT OF THE PRINCIPLES A ND THE GUIDELINES LAID DOWN BY THE HONBLE HIGH COURT OF DELHI (FULL BENCH ) IN THE CASE OF MONI KUMAR SUBBA (SUPRA). WE ACCORDINGLY SET ASID E THE ORDER OF THE LD. CIT (A) AND RESTORE THE ISSUE OF DETERMINATION OF THE ANNUAL LETTING VALUE OF THE PROPERTY FOR FRESH ADJUDICATIO N WITH THE DIRECTION THAT HE SHOULD DECIDE THE SAME IN THE LIGHT OF THE PRINCIPLES AND GUIDELINES LAID DOWN IN THE CASE OF MONI KUMAR SUBB A (SUPRA). THE HONBLE HIGH COURT HAS LAID DOWN THE GUIDELINES AFT ER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F SHAILA KAUSHIK 131 ITR 435 WE THEREFORE CONSIDER IT FIT TO REST ORE THIS ISSUE FOR DETERMINING THE ANNUL LETTING VALUE OF THE PROPERTY U/S.23(1)(A) TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE SAM E AFRESH IN THE LIGHT OF THE GUIDELINES LAID DOWN IN THE CASE OF MONI KUMAR SUBBA (SUPRA). ACCORDINGLY RELEVANT GROUNDS TREATED AS ALLOWED FO R STATISTICAL PU. 5. SO FAR AS NEXT ISSUE IS CONCERNED I.E. CLAIM OF THE DEDUCTION ON ACCOUNT OF VARIOUS CHARGES PAID TO M/S. PRABHADEVI PROPERTIES & TRADING CO. LTD. AMOUNTING TO RS 80 360/-. 6. BOTH THE PARTIES AGREE THAT AS THE MAJOR GROUND IS RESTORED TO THE FILE OF THE A.O. AS SUCH THIS GROUND MAY ALSO BE RESTORED TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION AS SOME IMP ORTANT DECISIONS HAVE NOT BEEN CONSIDERED BY THE A.O. AS WELL AS THE LD. CIT (A). WE ITA 6631/MUM/2009 SONALI CHETAN SHAH 5 ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT (A) ON GROUND NO.2 AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. NEEDLESS TO SAY THE A.O. SHOULD GIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 5TH JULY 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 15TH JULY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)13 MUMBAI. 4) THE CIT-7 MUMBAI. 5) THE D.R. D BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 6631/MUM/2009 SONALI CHETAN SHAH 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 13.07.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 13.07.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER