RADIO COPONENTS & TRANSISTROS CO. LTD, MUMBAI v. ITO 2(3)(1), MUMBAI

ITA 749/MUM/2011 | 2006-2007
Pronouncement Date: 30-12-2011 | Result: Partly Allowed

Appeal Details

RSA Number 74919914 RSA 2011
Assessee PAN TYEAR2002I
Bench Mumbai
Appeal Number ITA 749/MUM/2011
Duration Of Justice 11 month(s) 3 day(s)
Appellant RADIO COPONENTS & TRANSISTROS CO. LTD, MUMBAI
Respondent ITO 2(3)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-12-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 30-12-2011
Date Of Final Hearing 30-11-2011
Next Hearing Date 30-11-2011
Assessment Year 2006-2007
Appeal Filed On 27-01-2011
Judgment Text
1 RADIO COMPONENTS & TRANSISTORS CO LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI D DD D BENCH BENCH BENCH BENCH MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R K PANDA R K PANDA R K PANDA R K PANDA AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO JM VIJAY PAL RAO JM VIJAY PAL RAO JM VIJAY PAL RAO JM ITA NO. ITA NO. ITA NO. ITA NO. 745/MUM/2011 (ASST YEAR 2001 745/MUM/2011 (ASST YEAR 2001 745/MUM/2011 (ASST YEAR 2001 745/MUM/2011 (ASST YEAR 2001- -- -02) 02) 02) 02) ITA NO. 746/MUM/2011 (ASST YEAR 2002 ITA NO. 746/MUM/2011 (ASST YEAR 2002 ITA NO. 746/MUM/2011 (ASST YEAR 2002 ITA NO. 746/MUM/2011 (ASST YEAR 2002- -- -03) 03) 03) 03) ITA NO. 747/MUM/2011 (ASST YEAR 200 ITA NO. 747/MUM/2011 (ASST YEAR 200 ITA NO. 747/MUM/2011 (ASST YEAR 200 ITA NO. 747/MUM/2011 (ASST YEAR 2003 33 3- -- -04) 04) 04) 04) ITA NO. 782/MUM/2011 (ASST YEAR 2004 ITA NO. 782/MUM/2011 (ASST YEAR 2004 ITA NO. 782/MUM/2011 (ASST YEAR 2004 ITA NO. 782/MUM/2011 (ASST YEAR 2004- -- -05) 05) 05) 05) ITA NO. 748/MUM/2011 (ASST YEAR 2005 ITA NO. 748/MUM/2011 (ASST YEAR 2005 ITA NO. 748/MUM/2011 (ASST YEAR 2005 ITA NO. 748/MUM/2011 (ASST YEAR 2005- -- -06) 06) 06) 06) ITA NO. 749/MUM/2011 (ASST YEAR 2006 ITA NO. 749/MUM/2011 (ASST YEAR 2006 ITA NO. 749/MUM/2011 (ASST YEAR 2006 ITA NO. 749/MUM/2011 (ASST YEAR 2006- -- -07) 07) 07) 07) RADIO COMPONENTS & TRANSISTORS CO LTD 410/411 KHATAU HOUSE MOGUL LANE - MAHIM MUMBAI V S THE INCOME TAX OFFICER WARD 2(3)(1) MUMBAI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACR0413R AAACR0413R AAACR0413R AAACR0413R ASSESSEE BY SH PRAKASH JOTWANI REVENUE BY SH C G K NAIR DT.OF HEARING 30 TH NOV 2011 DT OF PRONOUNCEMENT 30 TH DEC 2011 ORDER ORDER ORDER ORDER PER PER PER PER BENCH: BENCH: BENCH: BENCH: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T THE RESPECTIVE ORDERS OF THE CIT(A) FOR THE AYS 2001-02 TO 2006-07. 2 SINCE THE MAJORITY OF THE ISSUES ARE COMMON IN AL L THESE APPEALS; THEREFORE THESE APPEALS ARE CONSOLIDATED FOR THE P URPOSE OF HEARING AND DISPOSED OFF BY THIS COMMON COMPOSITE ORDER. FOR TH E SAKE OF CONVENIENCE WE ARE TAKING THE ASSESSMENT YEAR 2001-02 IS BASE YEAR FOR THE PURPOSE OF FACTS AND GROUND RAISED BY THE ASSESSEE. 3 GROUND NO.1 IS REGARDING VALIDITY OF REOPENING TH E ASSESSMENT. THIS GROUND IS COMMON FOR THE ASSESSMENT YEAR 2001-02 TO 2004-05. 4 THE BRIEF FACTS GIVING RISE TO THE ISSUES ARE AS UNDER: 2 RADIO COMPONENTS & TRANSISTORS CO LTD THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH OCT 2001 FOR THE ASSESSMENT YEAR 2001-02 WHICH WAS PROCESSED U/S 143(1) ON 27 TH JUNE 2002. SUBSEQUENTLY THE RENTAL INCOME IN RESPECT OF THE OFFICE PREMISES IN QUESTION LET OUT TO M/S INDOKEM LTD WAS ASSESSED UNDER THE HEAD INCOME FRO M HOUSE PROPERTY FOR THE ASSESSMENT YEAR 2005-06 IN THE ASSESSMENT ORDER PA SSED U/S 143(3). CONSEQUENTLY THE ASSESSING OFFICER ISSUED NOTICE U /S 148 ON 10 TH AUG 2007 ON THE REASONS RECORDED BY THE ASSESSING OFFICER AS UN DER: IN THIS CONNECTION I HAVE TO BRING TO YOUR KIND NOTICE THAT WHEN A NOTICE U/S 148 IS ISSUED THE PROPER COURSE FOR THE NOTICE IS TO FILE A RETURN AND IF HE SO DESIRES TO SEEK REASONS FOR I SSUING THE NOTICE. THERE IS A WIDELY PREVALENT VIEW THAT THE REASONS NEED NOT BE DISCLOSED PRIOR TO THE FILING OF RETURN BUT IT CAN NOT BE DENIED AFTER THE RETURN IS FILED. DURING THE COURSE OF SCRUTINY PROCEEDINGS FOR THE A SSESSMENT YEAR 2005-06 IT IS LEARNT THAT THE ASSESSEE COMPANY HAS ACQUIRED ONE LEASE OFFICE PREMISES IN KHATAU HOUSE MAHIM MUMBA I CONSISTING OF THE ABASEMENT HAVING A TOTAL BUILD UP AREA OF 5100 SQ.FT AND THE GROUND FLOOR HAVING A TOTAL BUILT UP AREA OF 3700 S Q.FT BOTH LOCATED IN THE BUILDING STANDING ON THE PORTION OF THE PROP ERTY FROM CARONA LTD ON 30 TH MARCH 1995 FOR WHICH IT HAD PAID THE LEASE PREMIU M OF `. 3.75 CRORES. THE CONTENTS OF THE AFORESAID AGREE MENT WHICH IS WORTH MENTIONING IN THE CONTEXT OF THE ISSUE INVOLV ED IN THE ASSESSEE COMPANYS CASE THE LESSEE SHALL HAVE THE FULL RIGHT POWER AND AUT HORITY TO FURTHER ASSIGN TRANSFER SUBLET MORTGAGE SUB-IEA SE AND/OR GIVE ON LEAVE AND LICENSE BASIS OR ON ANY OTHER BAS IS OR ARRANGEMENT THE SAID PREMISES OR ANY PART OR PORTIO N THEREOF OR ITS INTEREST THEREIN EITHER AT ONE TIME OR AT D IFFERENT INTERVALS WITHOUT REQUIRING ANY FURTHER CONSENT OF THE LESSOR AND IN ANY EVENT THE SAID CONSENT IS HEREBY EXPRESS LY GRANTED AND THE ASSIGNEE AND THE TRANSFEREE OF THE LESSEE WILL ALSO BE ENTITLED TO HAVE SIMILAR RIGHTS. THEREFORE I HAVE REASON TO BELIEVE THAT INCOME CH ARGEABLE TO TAX AMOUNTING TO `. 3 16 800 APPRX. HAS ESCAPED ASSESSM ENT FOR THE AY 2001-02. THE TOTAL INCOME CHARGEABLE TO TAX WHICH HAS ESCAPE D ASSESSMENT FOR THE AY 2001-02 AMOUNTS TO `. 3 16 800 APPROX. A S SUCH THE ASSESSMENT FOR THE ASSESSMENT YEAR 2001-02 NEEDS TO BE REOPENED. NECESSARY APPROVAL AS PER PROVISO TO SEC. 151(2) OF THE I T ACT 1961 FOR ISSUE OF NOTICE U/S 148 OF THE I T AC T 1 961 HAS ALREADY OBTAINED. 3 RADIO COMPONENTS & TRANSISTORS CO LTD 4.1 THE REASONS FOR THE REOPENING OF THE ASSESSMENT FOR THE AYS 2002-03 2003-04 AND 2004-05 ARE ALSO IDENTICAL TO THE REASO NS FOR REOPENING OF THE ASSESSMENT FOR ASSESSMENT YEAR 2001-02. THEREFORE ALL THE ASSESSMENT YEARS FROM 2001-02 TO 2004-05 HAVE BEEN REOPENED ON THE B ASIS OF THE ASSESSMENT FOR THE AY 2005-06 WHEREBY THE ASSESSING OFFICER ASSESS ED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AND ALSO MADE OTHER DISA LLOWANCE. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFO RE THE CIT(A) AND APART FROM THE TREATMENT OF RENTAL INCOME AND DISALLOWANCE OF EXPENSES THE ASSESSEE ALSO OBJECTED THE VALIDITY OF THE REOPENING. THE CIT(A ) DID NOT ACCEPT THE OBJECTION OF THE ASSESSEE AND REJECTED THE GROUND IN PARA 4.2 TO 4.7 AS UNDER: 4.7 IT IS NOW WELL SETTLED THAT ASSESSMENT CAN BE REOPENED ON BASIS OF INFORMATION CONTAINED IN ASSESSMENT FOR SUBSEQUENT YEARS; FACT THAT APPEAL WAS PENDING AGAINST SUCH SUBSEQUENT ASSESSME NT WAS IMMATERIAL [ANUSANDHAN INVESTMENTS LTD. VS. M. R. SINGH 287 I TR 482. (BORN)]. IN THE PRESENT CASE THE REASONS FOR RE-OPENING WERE RECOR DED ON THE BASIS OF ASSESSMENT FRAMED FOR A.Y. 2005-06. ALSO WHERE THE ASSESSEE HAD SHOWN INCOME UNDER A WRONG HEAD THEREBY RETURNING LESSER INCOME ISSUE OF NOTICE UNDER SECTION 148 WAS HELD JUSTIFIED IN THE CASE OF ADITYA & CO. VS. CIT (2005) 279 LTR 47(P&H). IN VIEW OF THE FACTUAL AND LEGAL POSITION BROUGHT O UT ABOVE THE REOPENING OF ASSESSMENT IS UPHELD AND THIS GROUND IS DISMISSE D. 5 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE INCOME RETURNED BY THE ASSESSEE WAS TREATED AS INCOME ESCA PED WHILE ISSUING THE NOTICE U/S 148. THERE WAS NO ALLEGATION IN THE REASONS REC ORDED BY THE ASSESSING OFFICER THAT THE EXPENDITURE IS NOT ALLOWABLE. HE HAS FURTH ER SUBMITTED THAT NO NEW MATERIAL OR INFORMATION CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER TO FORM THE OPINION THAT THE INCOME ASSESSABLE TO TAX HAS E SCAPED ASSESSMENT. HE HAS RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. KELVINATOR OF INDIA L TD. REPORTED IN 256 ITR 1 AND SUBMITTED THAT EVEN IF THE CLAIM OF THE ASSESSEE IS ACCEPTED U/S 143(1) THE 4 RADIO COMPONENTS & TRANSISTORS CO LTD ASSESSING OFFICER CANNOT REVISE THE ORDER BY INVOKI NG THE PROVISIONS OF SEC. 147. THE SAID DECISION OF THE HONBLE DELHI HIGH COURT H AS BEEN CONFIRMED BY THE HONBLE SUPREME COURT IN 320 ITR 561. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY UNDER ASSESSMENT OF INCOME OR EXCESS CLAIM OF EXPENDITURE; THEREFORE THE REOP ENING IS BASED ON CHANGE OF OPINION. HE HAS FURTHER SUBMITTED THAT THE REOPENI NG IS TIME BARRED AS IT HAS BEEN REOPENED AFTER EXPIRY OF FOUR YEARS FROM THE E ND OF THE AYS 2001-02 AND 2002-03. TO ELABORATE HIS CONTENTION THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE RECEIVED RENT OF RS. 26 400/- PER MONTH AMOUNTING TO ` 3 16 800/- PER ANNUM AND THE SAID INCOME WAS DISC LOSED BY THE ASSESSEE AS BUSINESS INCOME AND ACCEPTED BY THE ASSESSING OFFIC ER. HENCE THE ASSESSING OFFICER HAS ERRED IN THE REASONS RECORDED THAT THE INCOME DECLARED BY THE ASSESSEE HAS ESCAPED ASSESSMENT WHEN THE SAID INCOM E WAS ASSESSED THOUGH UNDER DIFFERENT HEAD. 5.1 ON THE OTHER HAND THE LD DR HAS SUBMITTED THAT THE ASSESSMENT OF INCOME UNDER WRONG HEAD AMOUNTS TO UNDER ASSESSMENT AND THEREFORE THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. HE HAS FURTHER SUBMITTED THAT THE ASSESSMENTS WERE REOPENED ON THE BASIS OF THE FINDING OF THE ASSESSING OFFICER FOR THE AY 2005-06. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 5.2 AT THIS STAGE THE BENCH HAS POINTED OUT THE DE CISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MULTISCREE N MEDIA PRIVATE LIMITED V. UNION OF INDIA REPORTED IN 324 ITR 54 (BOM) ON THE POINT OF REOPENING BASED ON THE ASSESSMENTS OF SUBSEQUENT YEAR. THE LD AR OF THE A SSESSEE HAS SUBMITTED THAT THE SAID DECISION IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS NO NEW TANGIBLE MATERIAL WAS FOUND DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2005-06. 5 RADIO COMPONENTS & TRANSISTORS CO LTD 6 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S RELEVANT MATERIAL ON RECORD. UNDISPUTEDLY THERE WAS NO ASSESSMENT ON TH E RETURN OF INCOME FILED BY THE ASSESSEE FOR THE AYS 2001-02 TO 2004-05 AND ONL Y PROCESSED U/S 143(1); THEREFORE THE CASES FOR THESE ASSESSMENT YEARS DO NOT FALL UNDER THE FIRST PROVISO TO SEC. 147. FURTHER FOR THE AYS 2003-04 AND 2004- 05 THE REOPENING OF ASSESSMENTS ARE WITHIN FOUR YEARS FROM THE END OF T HE RELEVANT ASSESSMENT YEARS. THEREFORE FOR THOSE TWO YEARS APART FROM N O ASSESSMENT THE REOPENING IS WITHIN FOUR YEARS THE FIRST PROVISO TO SEC. 147 IS NOT APPLICABLE. THUS WHEN THE CASES DO NOT FALL UNDER THE FIRST PROVISO THEN THE PRE-REQUISITE CONDITION FOR EXERCISING THE POWERS U/S 147 IS EXISTENCE OF REASO NS TO BELIEVE THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. IT IS FURTHER PERTINENT TO NOTE THAT THE REOPENING OF THESE YEARS FALL UNDER EXPLANATION2 (B ) TO SEC. 147 WHICH CREATES DEEMING FICTION. 6.1 DURING THE ASSESSMENT PROCEEDINGS FOR THE AY 20 05-06 THE ASSESSING OFFICER MADE A DETAILED ENQUIRY AND PARTICULARLY EX AMINED AND VERIFIED THE LEASE AGREEMENT. WHEN A DETAILED ENQUIRY WAS MADE AND THE ASSESSING OFFICER FOUND THAT THE ASSESSEE VESTED WITH OWNERSHIP RIGHTS IN T HE PROPERTY IN QUESTION AND THEREFORE BY VIRTUE OF PROVISIONS OF SEC. 27(IIIB) THE ASSESSING OFFICER TREATED THE ASSESSEE AS DEEMED OWNER OF THE PROPERTY AND CO NSEQUENTLY ASSESSED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY IN THE SAID PROCEEDINGS U/S 143(3) FOR THE AY 2005-06. 6.2 FURTHER THE ASSESSING OFFICER OBSERVED THAT T HE ASSESSEE HAS NOT ENGAGED IN ANY BUSINESS ACTIVITY EXCEPT EARNING LEA SE RENT FROM THE SAID PROPERTY. THE MATERIAL GATHERED DURING THE ENQUIRY MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2005-06 IN OUR O PINION CONSTITUTE A TANGIBLE 6 RADIO COMPONENTS & TRANSISTORS CO LTD MATERIAL FOR FORMING A BELIEF THAT THE INCOME ASSES SABLE TO TAX HAS ESCAPED ASSESSMENT. 6.3 THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF MULTISCREEN MEDIA PRIVATE LIMITED (SUPRA) AFTER CONSIDERING THE DECIS ION OF THE HONBLE DELHI HIGH COURT AS WELL AS HONBLE S.C. IN THE CASE OF KELVIN ATOR INDIA (SUPRA) HAS HELD AS UNDER: WHAT IS MATERIAL IS THAT ON THE BASIS OF A DETAIL ED INQUIRY WHICH TOOK PLACE DURING THE COURSE OF THE ASSESSMEN T YEAR 2005-06 THE CLAIM OF THE ASSESSEE OF DEDUCTION OF THE ENTIRE EXPENSES WAS NOT ACCEPTED AND DISALLOWANCE W AS MADE TO THE EXTENT OF EXPENDITURE INCURRED OVER AND ABOVE 18.75 PER CENT. THE ASSESSING OFFICER DID SO ON THE BASIS OF FRESH MATERIAL WHICH CAME BEFORE HIM IN V IEW OF THE NOTICE DATED NOVEMBER 26 2008 IN PURSUANCE OF WHICH THE ASSESSEE FILED A DETAILED REPRESENTATION ELUCIDATING THE RELEVANT PARTICULARS OF THE BUSINE SS OF THE ASSESSEE AND THE REASONS FOR THE EXPENDITURE. WHETH ER THE ASSESSING OFFICER WAS JUSTIFIED IN THE DECISION WHI CH HE TOOK FOR THE ASSESSMENT YEAR 2005-06 IS AGAIN NOT A MATTER TO BE CONSIDERED AT THIS STAGE OF THE PROCEE DINGS. THE POINT IS THAT ON THE BASIS OF THE ADDITIONAL MA TERIAL WHICH WAS AVAILABLE ON RECORD THE ASSESSING OFFICE R ISSUED A NOTICE FOR REOPENING THE ASSESSMENT FOR THE ASSES SMENT YEAR 2004-05. IN OUR CONSIDERED VIEW THE ASSESSING OFFICER DID HAVE TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT UNDER SECTION 147 OF THE ACT AND TO FORM A REASON TO BELI EVE THAT INCOME HAD ESCAPED ASSESSMENT. CLAUSE (C)(IV) OF EXPLANATION 2 TO SECTION 147 CREATES A DEEMING FIC TION WHERE THOUGH THE ASSESSMENT HAS BEEN MADE INCOME CHARGEABLE TO TAX IS UNDER ASSESSED. IN SUCH A CASE LAW DEEMS THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. FOR THESE REASONS WE ARE OF THE VIEW T HAT RECOURSE TO THE PROVISIONS OF SECTION 147 CANNOT BE FAULTED. 6.4 THE HONBLE HIGH COURT HAS GIVEN THE ABOVE FIND INGS AFTER CONSIDERING VARIOUS DECISIONS OF THE HONBLE SUPREME COURT AND EARLIER DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT AND OBSERVED THAT THE ASSESSING OFFICER WHILE SEEKING TO REOPEN AN ASSESSMENT U/S 147 IS NOT PREC LUDED FROM RELYING ON AN ORDER OF ASSESSMENT IN THE SUBSEQUENT YEAR WHERE AD DITIONAL MATERIAL HAS 7 RADIO COMPONENTS & TRANSISTORS CO LTD EMERGED BEFORE THE ASSESSING OFFICER TO LEAD TO THE FORMATION OF A BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. WH EN THE ASSESSING OFFICER HAS ACTUALLY DID THE SAME INVESTIGATION AND ENQUIR Y IN THE SUBSEQUENT YEAR TO FIND OUT THE TRUTH OF THE CLAIM OF THE ASSESSEE THEN THE REQUIREMENT OF REASONS TO FORM THE OPINION THAT THE INCOME ASSESSABLE TO T AX HAS ESCAPED ASSESSMENT FOR REOPENING OF THE ASSESSMENT OF THE EARLIER YEAR IS PRIMA FACIE SATISFIED. 6.5 THE HONBLE JURISDICTIONAL HIGH COURT ALSO DISC USSED THE CASE OF SUPREME COURT IN THE CASE OF ESS ESS KAY ENGINEERING CO PVT LTD REPORTED IN 247 ITR 818 AND NOTED THAT THE SUPREME COURT HAS HELD THAT IT W OULD BE OPEN TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT BASED O N THE FINDING OF FACT MADE ON THE BASIS OF FRESH MATERIAL GATHERED IN THE COUR SE OF ASSESSMENT PROCEEDINGS FOR A SUBSEQUENT YEAR. 6.6 THE HONBLE HIGH COURT HAS ALSO DISCUSSED A DEC ISION IN THE CASE OF ANUSANDHAN INVESTMENTS LTD VS DCIT REPORTED IN 287 ITR 482 AND NOTED THAT IN THE SAID DECISION A DIVISION BENCH HAS HELD THAT IT IS A WELL ESTABLISHED POSITION OF LAW THAT AN ASSESSMENT CAN BE REOPENED ON THE BASIS OF INFORMATION CONTAINED IN AN ASSESSMENT OF A SUBSEQUENT YEAR. THE HONBLE JUR ISDICTIONAL HIGH COURT WHILE DECIDING THE ISSUE ALSO CONSIDERED THE DECISION OF THE SUPREME COURT IN THE CASE OF KELVINATOR REPORTED IN 320 ITR 561. 7 IN VIEW OF THE ABOVE DISCUSSION AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE INF ORMATION AND THE MATERIAL GATHERED DURING THE COURSE OF ASSESSMENT PROCEEDING S FOR THE AY 2005-06 WHEREBY THE RENTAL INCOME WAS ASSESSED UNDER THE HE AD INCOME FROM HOUSE PROPERTY CONSTITUTE A TANGIBLE MATERIAL FOR FORMING TO BELIEVE BY THE ASSESSING OFFICER THAT THE INCOME ASSESSABLE TO TAX HAS ESCAP ED ASSESSMENT. ACCORDINGLY 8 RADIO COMPONENTS & TRANSISTORS CO LTD THE REOPENING FOR THE AY 2001-02 TO 2004-05 IS VALI D AND AS PER LAW. THE ORDER OF THE CIT(A) IS UPHELD ON THIS POINT. 8 GROUND NO.2 IS REGARDING TREATMENT OF RENTAL INCO ME AS INCOME FROM HOUSE PROPERTY. 8.1 THIS ISSUE IS COMMON FOR ALL THE ASSESSMENT YEA RS. SINCE THIS ISSUE WAS ADJUDICATED BY THE ASSESSING OFFICER FIRST TIME FOR THE ASSESSMENT YEAR 2005-06 AND SUBSEQUENTLY REOPENED THE EARLIER ASSESSMENT; T HEREFORE FOR THE SAKE OF CONVENIENCE WE WOULD REFER THE FACTS FROM THE RECO RD OF THE ASSESSMENT YEAR 2005-06. 9 THE ASSESSEE ACQUIRED ON LEASE OFFICE PREMISES I N KHATAU HOUSE MAHIM MUMBAI CONSISTING OF BASEMENT AND GROUND FLOOR HAVI NG TOTAL BUILT-UP AREA OF 5001 SQFT AND 3700 SQFT RESPECTIVELY VIDE AGREEMENT DATED 30.3.1995. THE ASSESSEE PAID LEASE PREMIUM OF RS. 3.75 CRORES AND AGREED TO PAY LEASE RENT OF RS. 4900 PER MONTH. THE LEASE PERIOD WAS FOR TEN YE ARS W.E.F 1.4.1995 TO 31.3.2005. VIDE SEPARATE LEASE AGREEMENT DATED 31. 3.1995 THE ASSESSEE GAVE THE PREMISES IN QUESTION ON LEAVE AND LICENSE TO M/ S KHATAU JUNKER LTD. FOR A PERIOD OF FIVE YEARS W.E.F 1.4.95 WITH AN OPTION OF RENEWAL OF FURTHER FIVE YEARS. THE ASSESSEE RECEIVED INTEREST FREE SECURITY DEPOSI T (REFUNDABLE) OF RS. 3 CRORES. THE ASSESSEE HAS LET OUT THE PREMISES FOR A RENT/LI CENSE FEE OF RS. 26 400/- PER MONTH. THE NAME OF M/S KHATAU JUNKER LTD. WAS CHANG ED M/S INDOKEM LTD ON 25.10.1996. THE SUB LESSEE M/S KHATAU JUNKER LTD/ M /S INDOKEM LTD HAS FURTHER LEASED OUT THE PROPERTY ON LEAVE AND LICENSE TO M/S SUMANGAL HOLDINGS VIDE AGREEMENT DATED 10.3.1997 FOR A PERIOD OF NINE YEA RS W.E.F 10.3.1997 UPTO 9.3.2006. IN THE MEANTIME IN THE MEANTIME IN THE MEANTIME IN THE MEANTIME THE ASSESSEE RENEWED THE LEAVE AN D LICENSE AGREEMENT WITH M/S INDO CHEM. LTD FOR A FURTHER PE RIOD OF FIVE YEARS W.E.F 1.4.2000 ON THE SAME TERMS AND CONDITIONS. THE AGR EEMENT FOR LEAVE AND LICENSE DT 10.8.1997 BETWEEN M/S INDOKEM LTD AND M/S SUNDERLAL HOLDING WAS 9 RADIO COMPONENTS & TRANSISTORS CO LTD PREMATURELY TERMINATED W.E.F 1.4.2002 AND THEREAF TER M/S INDO C LTD ENTERED INTO AN AGREEMENT OF LEAVE AND LICENSE DT 10.1.200 4 WITH M/S PIF .. FOR A LUMP SUM FEE OF RS. 1 66 500 PER MONTH FOR GROUND FLOOR PORTION OF THE BUILDING. 9.1 AS REGARDS THE BASEMENT OF THE PREMISES THE S AME WAS LYING VACANT FROM APRIL 2002 TO AUG 2004 AND WAS GIVEN FOR LEAVE AND LICENSE IN PARTS TO TWO DIFFERENT PARTIES VIDE AGREEMENTS DATED 10.8.2004 11.8.2004 AND 2.5.2005. 9.2 THE ASSESSING OFFICER AFTER CONSIDERING THE TE RMS AND CONDITIONS OF THE AGREEMENT DATED 30.3.1995 WHEREBY THE ASSESSEE TOOK THE PREMISES ON LEASE AND PARTICULARLY CLAUSE 2(D) OF THE SAID AGREEMENT WHICH EMPOWERED THE ASSESSEE TO FURTHER ASSIGN TRANSFER SUBLET AND GIVE LEAVE AND LICENSE BASIS OR ANY OTHER BASIS ARRANGEMENTS. THE ASSESSING OFFICER VIEWED THAT IT APPEARS BEYOND DOUBT THAT THE OWNERSHIP RIGHTS OF THE SAID PROPERTY IS VESTED WITH THE ASSESSEE COMPANY. ACCORDINGLY FOLLOWING THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS PODAR CEMENTS REPORTED IN 226 ITR 625 THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS THE OWNER OF THE SAID PROPERTY AS DEFINED IN SEC 27 FOR THE PURPOSE OF SEC. 22. 10 ON APPEAL THE CIT(A) CONFIRMED THE ACTION OF TH E ASSESSING OFFICER . 11 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT THE LEASE AGREEMENT BY WHICH THE ASSESSEE HAS TAKEN THE PREMI SES IN QUESTION IS FOR A PERIOD OF TEN YEARS AND HENCE IT DOES NOT FALL UND ER CLASSIFICATION OF DEEMED OWNER AS DEFINED IN SEC. 27 AND AS LAID DOWN BY THE SUPREME COURT IN THE CASE OF PODAR CEMENTS (SUPRA). HE HAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO TAKE INTO CONSIDERATION THAT THE PR EMISES WERE TAKEN ON LEAVE AND LICENSE BASIS FOR A PERIOD OF TEN YEARS AND WHEN TH E PERIOD OF LEASE IS LESS THAN 12 YEARS THEN THERE IS NO TRANSFER OF PROPERTY W ITHIN THE MEANING OF SEC. 269UAF OF THE ACT. HE HAS CONTENDED THAT THE ASSESS EE CANNOT BE DEEMED TO BE 10 RADIO COMPONENTS & TRANSISTORS CO LTD THE OWNER OF THE HOUSE PROPERTY AS DEFINED U/S 27(I IIB) OF THE ACT. FURTHER LESSEE CANNOT BE TREATED AS THE OWNER AND ANY EVENT HAPPEN ING AFTER THIS YEAR WOULD NOT EFFECT THE STATUS OF THIS YEAR. 11.1 ON THE OTHER HAND THE LD DR HAS RELIED UPON T HE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT FROM THE TERMS AND CONDITIONS OF THE LEAVE AND LICENSE AGREEMENT IT IS CLEAR THAT THE ASSESSEE AC QUIRED FULL RIGHTS IN THE PROPERTY IN QUESTION FOR ASSIGNING MORTGAGE SUBLE TTING ETC. THEREFORE THE ASSESSEE FALLS UNDER THE DEFINITION OF DEEMED OWNER AS PER SEC. 27(IIIB) OF THE I T ACT. 12 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AS WELL AS RELEVANT MATERIAL ON RECORD. FROM THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT DATED 30.3.1995 THE INTENTION OF THE PARTIES IS CLEAR THAT THE MATE RIAL RIGHTS IN THE PROPERTY IN QUESTION WERE TRANSFER IN FAVOUR OF THE ASSESSEE WI THOUT ANY RESTRICTION OF ENJOYMENT AND FURTHER TRANSFER OF SUCH RIGHTS BY T HE ASSESSEE TO 3 RD PARTY. THUS BY VIRTUE OF THE SAID DEED OF LEASE AGREEMENT DATE D 30.3.1995 THE ASSESSEE ACQUIRED THE SUBSTANTIAL RIGHTS IN THE PROPERTY WHI CH WERE IRREVOCABLE EXCEPT IN CASE OF DEFAULT IN PAYMENT OF LEASE RENT. WE QUOT E THE RELEVANT TERMS OF DEED OF LEASE DATED 30.3.1995 AS UNDER: CLAUSE (2) CLAUSE (2) CLAUSE (2) CLAUSE (2) A) THE LEASE SHALL BE FOR A TERM OF 10 YEARS COMMEN CING FROM THE DATE OF THE EXECUTION OF THIS AGREEMENT; B) THE CONSIDERATION FOR THE GRANT BY THE LESSOR T O THE LESSEE OF SUCH LEASE SHALL BE: I) NON-REFUNDABLE PREMIUM OF ` 3 75 00 000 (RUPEES THREE CRORES SEVENTY FIVE LACS ONLY) TO BE PAID BY THE L ESSEE TO THE LESSOR IN THE MANNER FOLLOWING: A) RS. 2 00 K00 000 ON THE SIGNING OF THIS AGREEMEN T THE PAYMENT AND RECEIPT WHEREOF THE LESSOR DOTH HEREBY ADMIT AND ACKNOWLEDGE); AND 11 RADIO COMPONENTS & TRANSISTORS CO LTD B) RS. 1 75 00 000 WITHIN A PERIOD OF 90 DAYS FROM THE DATE OF THE EXECUTION OF THIS AGREEMENT; AND II) THE MONTHLY RENT OF RS. 4 400/- FOR THE PREMIS ES NET PAYABLE BY THE LESSEE TO THE LESSOR THE FIRST OF SUCH PAYME NT SHALL BE MADE SIMULTANEOUSLY WITH THE EXECUTION OF THIS AGRE EMENT AND SUBSEQUENT PAYMENT SHALL BE MADE ON OR BEFORE 15 TH DAY OF EACH SUCCEEDING ENGLISH CALENDAR MONTH THEREAFTER F OR THE ENTIRE PERIOD OF THE LESSEE; C) THE LESSEE SHALL BE ENTITLED TO USE THE SAID PRE MISES FOR COMMERCIAL PURPOSE OR FOR ANY OTHER PURPOSE AS MAY BE PERMITTED BY THE MUNICIPAL CORPN OF GREATER BOMBAY OR OTHER CONC ERNED AUTHORITIES. D) THE LESSEE SHALL HAVE THE FULL RIGHT POWER AND A UTHORITY TO FURTHER ASSIGN TRANSFER SUBLET MORTGAGE SUB-LEASE AND/ OR GIVE ON LEAVE AND LICENSE BASIS OR ON ANY OTHER BASIS OR ARRANGEM ENT THE SAID PREMISES OR ANY PART OR PORTION THEREOF OR ITS INT EREST THEREIN EITHER AT ONE TIME OR AT DIFFERENT INTERVALS WITHOUT REQU IRING ANY FURTHER CONSENT OF THE LESSOR AND IN ANY EVEN THE SAID CONS ENT IS HEREBY EXPRESSLY GRANTED AND THE ASSIGNEE AND THE TRANSFER EE OF THE LESSEE WILL ALSO BE ENTITLED TO HAVE SIMILAR RIGHTS CLAUSE 7) CLAUSE 7) CLAUSE 7) CLAUSE 7) IT SHALL BE THE RESPONSIBILITY AND LIABILITY OF TH E LESSEE TO PAY AND DISCHARGE ALL PRESENT AND FUTURE OUTGOINGS INCLUDIN G MUNICIPAL TAXES CESS DUES DUTIES IMPOSITIONS LEVYING AND PAYMEN TS AND OTHER DUES IN RESPECT OF THE SAID PREMISES FROM THE DATE OF TH E EXECUTION OF THIS AGREEMENT INCLUDING ALL INCREASES THERETO. CLAUSE 6) CLAUSE 6) CLAUSE 6) CLAUSE 6) IF THE LESSEE CONTINUES IN POSSESSION OF THE SAID PREMISES AT THE EXPIRATION OF THE TERMS THIS LEASE IT SHALL BE TRE ATED AS CONTRACTUAL MONTHLY TENANT OF THE SAID PREMISES AT THE RENT HER EBY RESERVED AND UPON AND SUBJECT TO THE TERMS AND CONDITIONS HEREI N CONTAINED WITH A RIGHT TO CREATE SUB TENANCY AND OR SUBLEASE AND O R SUB LICENCE IN RESPECT OF THE SAID PREMISES. 12.1 FROM THE ABOVE TERMS AND CONDITIONS AS WELL AS FROM THE AGREEMENT TO SUB-LET THE PROPERTY BY THE ASSESSEE TO THE THIRD P ARTY IT IS CLEAR THAT THE ASSESSEE WAS IN THE POSSESSION OF THE PROPERTY WITH FULL TRANSFERABLE RIGHTS AND HAS BEEN RECEIVING THE RENT FROM THE SUB-TENANT IN HIS OWN CAPACITY BEING OWNER OF THE PROPERTY. THERE IS NO DOUBT THAT THE ASSESSE E INITIALLY HAS SU-LET OUT THE 12 RADIO COMPONENTS & TRANSISTORS CO LTD PROPERTY FOR NINE YEARS AND THEREAFTER EXTENDED F OR FURTHER FIVE YEARS W.E.F 1.9.2006 VIDE AGREEMENT DATED 30.8.2006; THEREFOR E WHEN THE ASSESSEE HAS SUB-LET OUT THE PROPERTY FOR MORE THAN 12 YEARS THEN IT GOES TO SHOW THAT THE CONDITIONS AS STIPULATED IN CLAUSE (F) OF SEC. 269 UA ARE SATISFIED. 12.1 THE HONBLE SUPREME COURT IN THE CASE OF COMMISSION ER OF INCOME-TAX V. PODAR CEMENT PVT. LTD. REPORTED IN 226 ITR 625 HAS OBSERVED THAT; WE HAVE NOTICED THE RELIANCE PLACED BY THE BAR ON TH E DECISION OF THIS COURT IN JODHA MAL KUTHIALAS CASE [1971] 82 ITR 570 WHIC H WAS CONCERNED WITH THE OLD SECTION 9(1) OF THE ACT. IN THAT CASE THIS COU RT HAD OCCASION TO CONSIDER THE MEANING TO BE GIVEN TO THE WORDS OF WHICH HE IS THE OWNER. OF COURSE ON THE FACTS THE COURT WAS CALLED UPON TO DECIDE W HETHER THE ERSTWHILE ADMITTED OWNER OF THE PROPERTY IS LIABLE TO PAY INC OME-TAX ON THE HOUSE PROPERTY UNDER SECTION 9 EVEN AFTER THE SAID PROPERTY HAS VESTED IN THE CUSTODIAN OF EVACUEE PROPERTY BY VIRTUE OF SECTION 6(1) OF THE PAKISTAN (ADMINISTRATION OF EVACUEE PROPERTY) ORDINANCE 1949. THE CONTENTION OF THE REVENUE IN THAT WAS THAT NOTWITHSTANDING THE VESTIN G OF THE HOUSE PROPERTY IN THE CUSTODIAN THE LEGAL OWNERSHIP REMAINED WITH THE ASSESSEE THEREIN AND THEREFORE SECTION 9(1) OF THE OLD ACT WAS ATTRACTED . THIS CONTENTION WAS REPELLED BY THIS COURT. HEGDE J. SPEAKING FOR THE BE NCH OBSERVED AT PAGE 575 OF 82 ITR: THE QUESTION IS WHO IS THE OWNER REFERRED TO IN T HIS SECTION ? IS IT THE PERSON IN WHOM THE PROPERTY VESTS OR IS IT HE WHO IS E NTITLED TO SOME BENEFICIAL INTEREST IN THE PROPERTY ? IT MUST BE REM EMBERED THAT SECTION 9 BRINGS TO TAX THE INCOME FROM PROPERTY AN D NOT THE INTEREST OF A PERSON IN THE PROPERTY. A PROPERTY CANNOT BE OWNED B Y TWO PERSONS EACH ONE HAVING INDEPENDENT AND EXCLUSIVE RIGHT OVE R IT. HENCE FOR THE PURPOSE OF SECTION 9 THE OWNER MUST BE THAT PERS ON WHO CAN EXERCISE THE RIGHTS OF THE OWNER NOT ON BEHALF OF T HE OWNER BUT IN HIS OWN RIGHT. THE LEARNED JUDGE OBSERVED THAT IT IS TRUE THAT EQ UITABLE CONSIDERATIONS ARE IRRELEVANT IN INTERPRETING TAX LAWS. BUT THOSE LAWS LIKE ALL OTHER LAWS HAVE TO BE INTERPRETED REASONABLY AND IN CONSONANCE WITH JUST ICE. AGAIN AT PAGE 577 IT WAS HELD THAT FOR DETERMINING THE PERSON L IABLE TO PAY TAX THE TEST LAID DOWN BY THE COURT WAS TO FIND OUT THE PERSON ENTITL ED TO THAT INCOME. AGAIN AT PAGE 578 IT WAS OBSERVED: NO ONE DENIES THAT AN EVACUEE FROM PAKISTAN HAS A RESIDUAL RIGHT IN THE PROPERTY THAT HE LEFT IN PAKISTAN. BUT THE REAL QUESTION IS CAN THAT RIGHT BE CONSIDERED AS OWNERSH IP WITHIN THE MEANING OF SECTION 9 OF THE ACT. AS MENTIONED EARLIER THAT SECT ION SEEKS TO BRING TO TAX INCOME OF THE PROPERTY IN THE HANDS OF THE OWNER. HE NCE THE FOCUS OF THAT SECTION IS ON THE RECEIPT OF THE INCOME . . . THE M EANING THAT WE GIVE TO THE WORD OWNER IN SECTION 9 MUST NOT BE SUCH AS TO MAKE THAT PROVISION CAPABLE OF BEING MADE AN INSTRUMENT OF OPPRESSION. IT MUST BE IN CONSONANCE WITH THE PRINCIPLES UNDERLYING THE ACT. 13 RADIO COMPONENTS & TRANSISTORS CO LTD IN OUR OPINION THE ABOVE OBSERVATIONS OF THIS COURT C LEARLY FIX THE LIABILITY ON A PERSON WHO RECEIVESOR IS ENTITLED TO RECEIVE THE INC OME FROM THE PROPERTY IN HIS OWN RIGHT. IN SPITE OF THIS THE ASSESSING OFFI CERS OF VARIOUS CIRCLES INSTEAD OF UNIFORMLY FOLLOWING THE RATIO LAID DOWN IN THIS CASE HAVE TAKEN DIFFERENT DIAMETRICALLY OPPOSITE VIEWS DEPENDING UPON THE PRO NOUNCEMENTS OF THE CONCERNED HIGH COURTS IN THE CIRCLES ON THE SCOPE O F SECTION 22 OF THE ACT. THE HIGH COURTS OF ALLAHABAD PUNJAB AND HARYANA RAJ ASTHAN CALCUTTA AND PATNA HAVE TAKEN THE VIEW BY CORRECTLY UNDERSTANDI NG THE RATIO LAID DOWN IN JODHA MAL KUTHIALAS CASE [1971] 82 ITR 570 (SC) A ND THE HIGH COURTS OF BOMBAY DELHI AND ANDHRA PRADESH HAVE TAKEN A DIFFEREN T VIEW WRONGLY DISTINGUISHING ON FACTS JODHA MAL KUTHIALAS CASE [ 1971] 82 ITR 570 (SC). .. THE HONBLE SUPREME COURT FURTHER OBSERVED; THUS THE JURISTIC PRINCIPLE FROM THE VIEW-POINT OF EACH ONE IS TO DETERMINE THE TRUE CONNOTATION OF THE TERM OWNER WITHIN THE MEANIN G OF SECTION 22 OF THE ACT IN ITS PRACTICAL SENSE LEAVING THE HUSK OF THE LEGAL TITLE BEYOND THE DOMAIN OF OWNERSHIP FOR THE PURPOSE OF THIS STATUTOR Y PROVISION. THE REASON IS OBVIOUS. AFTER ALL WHO IS TO BE TAXED OR ASSESSED TO BE TAXED MORE ACCURATELYA PERSON IN RECEIPT OF MONEY HAVING ACTUAL CONTROL OVER THE PROPERTY WITH NO PERSON HAVING BETTER RIGHT TO DEFEAT HIS CLAIM OF POSSESSION OR A PERSON IN LEGAL PARLANCE WHO MAY REMAIN A REMAIN DER MAN SAY AT THE END OR EXTINCTION OF THE PERIOD OF OCCUPATION AFTER AGAIN SAY A THOUSAND YEARS ? FINALLY THE HONBLE SUPREME COURT HAS HELD AS UNDE R ; FROM THE CIRCUMSTANCES NARRATED ABOVE AND FROM THE ME MORANDUM EXPLAINING THE FINANCE BILL 1987 (SEE [1987] 165 I TR (ST.) 161) IT IS CRYSTAL CLEAR THAT THE AMENDMENT WAS INTENDED TO SUPPLY AN OBVIOU S OMISSION OR TO CLEAR UP DOUBTS AS TO THE MEANING OF THE WORD OWNER IN S ECTION 22 OF THE ACT. WE DO NOT THINK THAT IN THE LIGHT OF THE CLEAR EXPO SITION OF THE POSITION OF A DECLARATORY/CLARIFICATORY ACT IT IS NECESSARY TO MUL TIPLY THE AUTHORITIES ON THIS POINT. WE HAVE THEREFORE NO HESITATION TO HOLD TH AT THE AMENDMENT INTRODUCED BY THE FINANCE BILL 1987 WAS DECLARATOR Y/CLARIFICATORY IN NATURE SO FAR AS IT RELATES TO SECTION 27(III) (IIIA) AND (III B). CONSEQUENTLY THESE PROVISIONS ARE RETROSPECTIVE IN OPERATION. IF SO THE VIEW TAK EN BY THE HIGH COURTS OF PATNA RAJASTHAN AND CALCUTTA AS NOTICED ABOVE G ETS ADDED SUPPORT AND CONSEQUENTLY THE CONTRARY VIEW TAKEN BY THE DELHI B OMBAY AND ANDHRA PRADESH HIGH COURTS IS NOT GOOD LAW. WE ARE CONSCIOUS OF THE SETTLED POSITION THAT UNDER THE COMMON LAW OWNER MEANS A PERSON WHO HAS GOT VALID TITLE LEGAL LY CONVEYED TO HIM AFTER COMPLYING WITH THE REQUIREMENTS OF LAW SUCH AS THE TRA NSFER OF PROPERTY ACT REGISTRATION ACT ETC. BUT IN THE CONTEXT OF SECTI ON 22 OF THE INCOME-TAX ACT HAVING REGARD TO THE GROUND REALITIES AND FURTHER HAVI NG REGARD TO THE OBJECT 14 RADIO COMPONENTS & TRANSISTORS CO LTD OF THE INCOME-TAX ACT NAMELY TO TAX THE INCOME WE ARE OF THE VIEW OWNER IS A PERSON WHO IS ENTITLED TO RECEIVE INCOME FROM THE PROPERTY IN HIS OWN RIGHT. 12.2 THIS VIEW HAS BEEN FOLLOWED BY THE HONBLE SUP REME COURT IN THE CASE OF MYSORE MINERALS LTD. V. COMMISSIONER OF INCOME-TAX REPORTED IN 239 ITR 775.; THOUGH THE ISSUE IN THE SUBSEQUENT CASE WAS OWNERSHIP FOR THE PURPOSE OF DEPRECIATION U/S 32 AND OBSERVED AS UNDER: PODAR CEMENTS CASE [1997] 226 ITR 625 (SC) IS UND ER THE INCOME-TAX ACT AND HAS TO BE TAKEN AS A TREND-SETTER IN THE CONCEPT OF OWNERSHIP. ASSISTANCE FROM THE LAW LAID DOWN THEREIN CAN BE TA KEN FOR FINDING OUT THE MEANING OF THE TERM OWNED AS OCCURRING IN SECTION 32(1) OF THE ACT. IN OUR OPINION THE TERM OWNED AS OCCURRING IN SE CTION 32(1) OF THE INCOME- TAX ACT 1961 MUST BE ASSIGNED A WIDER MEANING. AN YONE IN POS- SESSION OF PROPERTY IN HIS OWN TITLE EXERCISING SUCH DOMINION O VER THE PROPERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THEREFROM AND HAVING THE RIGHT TO USE AND OCCUPY THE PROPERTY AND/OR TO ENJOY ITS USUFRUCT IN H IS OWN RIGHT WOULD BE THE OWNER OF THE BUILDINGS THOUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXECUTED AND REGISTERED AS CONTEMPLATED BY THE TRANS FER OF PROPERTY ACT THE REGISTRATION ACT ETC. BUILDING OWNED BY THE ASSESSEE THE EXPRESSION AS OCCURRING IN SECTION 32(1) OF THE INCOME-TAX ACT ME ANS THE PERSON WHO HAVING ACQUIRED POSSESSION OVER THE BUILDING IN HIS OWN RIGHT USES THE SAME FOR THE PURPOSES OF THE BUSINESS OR PROFESSION THOU GH A LEGAL TITLE HAS NOT BEEN CONVEYED TO HIM CONSISTENTLY WITH THE REQUIREM ENTS OF LAWS SUCH AS THE TRANSFER OF PROPERTY ACT AND THE REGIS RATION ACT ETC . BUT NEVERTHELESS IS ENTITLED TO HOLD THE PROPERTY TO THE EXCLUSION OF AL L OTHERS. 13 THUS IT IS CLEAR THAT FOR THE PURPOSE OF I T AC T THE ASPECT OF OWNERSHIP IS DIFFERENT FROM THE COMMON LAW AND IF THE ASSESSEE I S HAVING RIGHT TO USE AND OCCUPY THE PROPERTY AND TO ENJOY ITS USUFRUCT IN HIS OWN R IGHT WOULD BE THE OWNER OF THE PROPERTY THOUGH MAY NOT BE HAVING THE FORMAL DEED O F TITLE IN HIS FAVOUR AS CONTEMPLATING UNDER THE TRANSFER OF PROPERTY ACT. 13.1 IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE ASSESSEE AS DEEMED OWNER U/S 27(IIIB) O F THE ACT AND SUBSEQUENTLY 15 RADIO COMPONENTS & TRANSISTORS CO LTD TREATED THE RENTAL INCOME FROM SUB-TENANT AS INCOME FROM HOUSE PROPERTY. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS DISMISS ED. 14 NEXT ISSUE IS REGARDING DETERMINATION OF THE ANN UAL LETTING VALUE (ALV). THIS GROUND IS COMMON IN ALL THESE APPEALS. 14.1 THE ASSESSING OFFICER NOTICED THAT THE ASSES SEE RENTED OUT THE PREMISES IN QUESTION TO M/S INDOKEN LTD FOR A MONTHLY RENT O F RS. 26 400/- AND SHOWN THE RENTAL RECEIPT OF RS. 3 16 800/- THE ASSESSING OF FICER FURTHER OBSERVED AS UNDER: THEREAFTER M/S INDOKEM LTD HAS FURTHER RENTED OUT THE UNDER MENTIONED AREA OF THE SAID PREMISES TO M/S MUDRA COMMUNICATIONS PVT LTD FOR THE FOLLOWING RENT: SR. NO. TOTAL AREA RATE PER SQ. FT. RENT PER MONTH RENT PER ANNUM 1 1900 SQ.FT. ON THE GROUND FLOOR RS.85/- RS.1 61 500/- RS.19 38 000/- 2 . 4300 SQ. FT. IN THE BASEMENT RS.70/- RS.3 01 000/- RS.36 12 000/- TOTAL RS.55 50 000/- AS CAN BE SEEN FROM THE ABOVE THE ASSESSEE COMPANY HAS RECEIVED A RENT OF `.3 16 800/- FOR 12 MONTH. HOWEVER M/S. INDOKEM LT D. RECEIVED A RENT @ OF RS.70/-PER SQ. FT. IN THE BASEMENT AND RS.85/-PER S Q. FT. ON THE GROUND FLOOR FOR THE SAME PREMISES. THIS APPEARS TO BE RATHER RIDICU LOUS. THERE IS ASTRONOMICAL DIFFERENCE BETWEEN THE RENT RECEIVED FROM M/S. INDO KERN LTD. AS SUCH BY ALL STANDARDS THE PREVAILING MARKET RENT OF THE SAID OF FICE PREMISES HAS TO BE `.6 7L 500/PER MONTH. THE AFORESAID FACTS ALSO PRO VE THE SAME. 14.2 ACCORDINGLY THE ASSESSING OFFICER COMPUTED TH E ALV OF THE OF THE PROPERTY AT `. 6 71 500/- PER MONTH BY TAKING INTO ACCOUNT THE RENT RECEIVED BY M/S INDOKEM LTD FROM SUB-TENANT. 14.3 ON APPEAL THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN COMPUTING THE ALV. 16 RADIO COMPONENTS & TRANSISTORS CO LTD 15 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMIT TED THAT THE FIGURE OF RENT OF `.6 71 300/- PER MONTH WORKED OUT BY THE ASSESS ING OFFICER WAS ABSOLUTELY INCORRECT AND NOT RELEVANT TO THE ASSESSEES CASE FOR THE YEAR UNDER CONSIDERATION DUE TO THE FOLLOWING FACTS: (1) INDOKEM LTD. HAS MADE LICENSE ARRANGEMENT WITH MUDRA COMMUNICATIONS PVT. LTD. W.E.F 1 OCTOBER 2006 I.E. MUCH AFTER THE END OF THE ACCOUNTING YEAR 2004-05 RELEVANT TO THE ASS ESSMENT YEA UNDER CONSIDERATION. (II) THE PREMISES WHICH HAVE BEEN REFERRED TO BY A SSESSING OFFICER IN THE SHOW CAUSE NOTICE BELONG TO INDOKEN LTD. AND NOT TO THE ASSESSEE COMPANY. SO THESE FIGURES ARE NOT RELEVANT TO THE A SSESSEES CASE. .. . (III) INDOKEN LTD. HAS MADE COMPOSITE LETTING OUT ARRANGEMENT WITH MUDRA COMMUNICATIONS PVT. LTD. WHEREBY IT HAS ALLO WED THE LATTER COMPANY USER OF PREMISES TOGETHER WITH ALL FURNITUR E FIXTURE AND FITTINGS LYING THEREIN AS WELL AS TWENTY-FOUR HOURS FACILITY OF AIR-CONDITIONING IN THE ENTIRE PREMISES DRINKING WATER AND WATER FOR GENER AL USE AND EXTERNAL SECURITY (IV) INDOKEM LTD. HAS GIVEN A INTEREST-FREE DEPOSIT OF `.3 CRS. TO THE ASSESSEE COMPANY WHEREAS MUDRA COMMUNICATIONS PVT. LTD. HAS PLACED A DEPOSIT OF AN AMOUNT EQUIVALENT TO SIX MONTHS LICE NSE FEE ONLY WITH INDOKEM LTD. (V) THE ASSESSEE HAS ENTERED INTO LICENSE ARRANGEME NT WITH INDOKEM LTD. IN MARCH 1995 WHICH ARRANGEMENT WAS STILL PERSISTI NG DURING THE FINANCIAL YEAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. WHETHER BY ANY STRETCH OF IMAGINATION THE ASSESSE E COULD HAVE ENVISAGED IN WHAT YEAR THAT THE PROPERTY WOULD BRIN G SUCH HIGH RENTS AFTER TEN YEARS AND IT SHOULD HAVE ACCORDINGLY FIXED THE LICENSE FEES DURING THAT YEAR? (VI) RIGHT FROM THE ASST.YEAR 1996-97 THE ASSESSEE COMPANY HAS SHOWN IN ITS RETURN OF INCOME RENTAL INCOME OF `. 3 16 800/- AS BUSINESS INCOME AND THE SAME HAS BEEN ACCEPTED IN THE ASSESSMENT YEAR AFTER YEAR. (VII ) THE RENTS OF PROPERTIES HAVE GONE UP ASTRONO MICALLY IN MAHIM WHERE THE PROPERTY OF THE COMPANY IS SITUATE DURING THE L AST TWO YEARS ONLY. 2.2 WITHOUT PREJUDICE TO THE STAND THAT THE RENTAL INCOME CANNOT BE 17 RADIO COMPONENTS & TRANSISTORS CO LTD ASSESSED AS: INCOME FROM 1WSERTY IF AT ALL THE IN COME HAS TO BE ASSESSED UNDER THE SAID HEAD ANNUAL VALUE OF THE P ROPERTY HAS BE DETERMINED AS PER THE PROVISIONS OF SEC.23(1) OF TH E ACT WHICH SAY THAT THE ANNUAL VALUE OF ANY PROPERTY SHALL BE THE HIGHE R OF THE FOLLOWING: I) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR ( NORMALLY SPEAKING IT IS T HE STANDARD RENT OF THE PROPERTY) AND II) ACTUAL RENT RECEIVED (NOT THE RENT THAT COULD HAVE BEEN RECEIVED). 15.1 HE HAS FURTHER SUBMITTED THAT THE ASSESSING OF FICER TOOK FUTURE AGREEMENTS INTO CONSIDERATION WHILE COMPUTING THE A LV IN THE YEARS UNDER CONSIDERATION. 15.2 THE LD DR ON THE OTHER HAND HAS RELIED UPON TH E ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT WHEN THE PROPERTY CA N BE REASONABLY LET OUT AND FETCH THE RENT WHICH WAS RECEIVED BY THE SUB-TENANT THEN FOR COMPUTING THE ALV U/S 23(A) THE RENT RECEIVED BY THE SUB-TENANT IS A RELEVANT MATERIAL. HE HAS RELIED UPON THE ORDER OF THE TRIBUNAL IN THE CASE O F PRAMILA ESTATES P LTGD VS ITO REPORTED IN 27 SOT 133 AS WELL AS THE DECISION OF T HE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF I NCOME-TAX V. MONI KUMAR SUBBA REPORTED IN 333 ITR 38 (DEL)(FB). 16 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT MATERIAL ON RECORD. FOR THE PURPOSE OF TAXATION OF INCOME FR OM HOUSE PROPERTY SECTION 22 PRESCRIBES THE ANNUAL VALUE OF THE PROPERTY CONSISTING OF BUILDING OR LAND APPURTENANT THERETO OF WHICH THE ASSESSEE IS OWNER. THUS INCOME FROM HOUSE PROPERTY IS MEASURED AS ANNUAL VALUE OF THE PROPERTY. SECTION 23 CONTEMPLA TES THE MANNER IN WHICH THE ANNUAL VALUE OF THE PROPERTY HAS TO BE DETERMINED. AS PER SUBSECTION (1) OF SECTION 23 THE AO HAS TO FIRS T DETERMINE THE 18 RADIO COMPONENTS & TRANSISTORS CO LTD SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPE CTED TO FETCH THE RENT FROM YEAR TO YEAR AND THEN IF THE PROPERTY IS LET OUT COMPARE THE SAME WITH THE ANNUAL/ACTUAL RENT RECEIV ED OR RECEIVABLE. THUS AS PER CLAUSE (A) OF SUB-SECTIO N (1) OF SECTION 23 THE REASONABLE RENT EXPECTED TO BE FETCHED BY THE PROPERTY BY LETTING OUT FROM YEAR TO YEAR HAS TO BE DETERMINED. CLAUSE (B) OF SUBSECTION (1) OF SECTION 23 DEALS WITH THE CASES WHERE THE PROPERTY IS LET OUT. IT IS PERTINENT TO NOTE THAT PRIOR TO A MENDMENT WITH EFFECT FROM 1.4.1996 THERE WAS NO SUCH CLAUSE (B) IN SUB-S ECTION(1) OF SECTION 23. THE PROVISIONS WAS FURTHER AMENDED BY THE FINANCE ACT 2001 W.E.F 1.4.2002 WHEREBY THE WORD ANNUAL RENT RECEIVED OR RECEIVABLE HAS BEEN SUBSTITUTED BY THE WORD ACT UAL RENT RECEIVED OR RECEIVABLE. THOUGH THIS CHANGE OF THE TERM FRO M ANNUAL RENT TO ACTUAL RENT HAS NOT ALTERED ANY MATERIAL MEANING OF THE PROVISION EXCEPT FOR THE FIRST YEAR OF LETTING OUT OR IN CASE THE PROPERTY IS NOT LET OUT FOR FULL YEAR. THUS FOR DETERMINATION OF THE ALV UNDER SECTION 23(1) THE ASSESSING OFFICER HAS FIRST TO FIND OU T THE REASONABLY EXPECTED RENT WHICH THE PROPERTY MIGHT FETCH BY LETTING OUT FROM YEAR TO YEAR AND THEN THIS REASONABLY EXPECTED RENT HAS TO BE COMPARED WI TH THE ANNUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER AND IF ANNUAL R ENT RECEIVED OR RECEIVABLE AS CONTEMPLATED UNDER SECTION 23(1)(B) IS IN EXCESS OF THE REASONABLE RENT EXPECTED FROM LETTING OUT THE PROPERTY FROM YEAR TO YEAR AS DETERMINED U/S 23(1)(A) THE AMOUNT SO RECEIVED OR RECEIVABLE WOUL D THE ANNUAL VALUE FOR THE PURPOSE OF SECTION 22 OF THE ACT. 16.1 FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS OF THE HONBLE SUPREME COURT AS WELL AS HIGH COURTS IT IS CLEAR THAT THE STANDARD RENT OR THE MUNICIPAL VALUE AS CASE MAY BE IS THE ONE OF THE VARIOUS FACTORS T O BE TAKEN INTO ACCOUNT BY 19 RADIO COMPONENTS & TRANSISTORS CO LTD THE AO WHILE DETERMINING THE FAIR RENT EXPECTED TO BE FETCHED FOR LETTING OUT THE PROPERTY FROM YEAR TO YEAR U/S 23(1)(A). 16.2 RECENTLY THE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MONI KUMAR SUBBA (SUPRA) AFTER CONSIDERING THE DECISION OF THE DIVISION BENCH OF THE HONBLE HIGH COURT IN THE CASE OF CI T V/S ASIAN HOTELS LTD OBSERVED AND HELD IN PARAGRAPH 13 TO 22 AS UNDER : 13. WE APPROVE THE AFORESAID VIEW OF THE DIVISION BENCH OF THIS COURT AND OPERATIVE WORDS IN SECTION 23 (1)(A) OF T HE ACT ARE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPE CTED 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 INQU IRY 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 TH E FAIR/MARKET RENT BECAUSE OF THE REASON THAT THE ASSESSEE HAS RECEIVE D ABNORMALLY HIGH INTEREST FREE SECURITY DEPOSIT AND BECAUSE OF THAT REASON THE ACTUAL RENT RECEIVED IS LESS THAN THE RENT WHICH TH E 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 DETERMINATIV E FACTOR TO ARRIVE AT A FAIR RENT . PROVISIONS OF SECTION 23(1)(A) DO NOT MANDATE THI S. THE DIVISION BENCH IN ASIAN HOTELS LIMITED (SUPRA) THUS RIGHTLY OBSERVED THAT IN A TAXING STATUTE IT WOULD BE UNSAF E FOR THE COURT TO GO BEYOND THE LETTER OF THE LAW AND TRY TO READ INT O THE PROVISION MORE THAN WHAT IS ALREADY PROVIDED FOR. WE MAY ALSO RECORD THAT EVEN THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. J. K. INVESTORS (BOMBAY) LTD. [(2001) 248 ITR 723 (BOM.)] CATEGORICALLY REJECTED THE FORMULA OF A DDITION OF NOTIONAL INTEREST WHILE DETERMINING THE FAIR RENT IN THE FOLLOWING MANNER: .BEFORE CONCLUDING WE MAY POINT OUT THAT UNDER SECTION (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 WITH IN SECTION (23)(1)(B) AND IT IS FOR THIS REASON THAT T HE WORD 'RECEIVABLE' MUST BE READ IN THE CONTEXT OF THE WOR D 'RECEIVED' IN SECTION(23)(1)(B). IN THE LIGHT OF TH E ABOVE INTERPRETATION NOTIONAL INTEREST CANNOT FORM 20 RADIO COMPONENTS & TRANSISTORS CO LTD PART OF THE ACTUAL RENT AS CONTEMPLATED BY SECTION (23)(1)(B) OF THE ACT . WE ONCE AGAIN REPEAT THAT WHETHER SUCH NOTIONAL INTEREST COULD FORM PART OF T HE FAIR RENT UNDER SECTION (23)(1)(A) IS EXPRESSLY LEF T OPEN. 14. IT IS THUS MANIFEST THAT VARIOUS COURTS HAVE HELD A CONSISTENT VIEW THAT NOTIONAL INTEREST CANNOT FORM PART OF ACT UAL RENT. HENCE THERE IS NO JUSTIFICATION TO TAKE A DIFFERENT VIEW THAT WHAT HAS BEEN STATED IN ASIAN HOTELS LIMITED (SUPRA) . 15. THE NEXT QUESTION WOULD BE AS TO WHETHER THE AN NUAL LETTING VALUE FIXED BY THE MUNICIPAL AUTHORITIES UNDER THE DELHI MUNICIPAL AUTHORITY ACT CAN BE THE BASIS OF ADOPTING ANNUAL L ETTING VALUE FOR THE PURPOSES OF SECTION 23 OF THE ACT. THIS QUESTIO N WAS ANSWERED IN AFFIRMATIVE BY THE CALCUTTA HIGH COURT IN SATYA CO. LTD. (SUPRA) ON THE GROUND THAT THE PROVISIONS CONTAINED IN THE DELHI MUNICIPAL CORPORATION ACT FOR FIXING ANNUAL LETTING VALUE IS PARI MATERIA WITH SECTION 23 OF THE ACT. THE COURT OPINED THAT THE FA IR RENT FIXED UNDER THE MUNICIPAL LAWS WHICH TAKES INTO CONSIDER ATION EVERYTHING WOULD FORM THE BASIS OF ARRIVING AT ANN UAL VALUE TO BE DETERMINED UNDER SECTION 23(1)(A) AND TO BE COMPARE D WITH ACTUAL RENT AND NOTIONAL ADVANTAGE IN THE FORM OF NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT COULD NOT BE TAKEN I NTO CONSIDERATION. IT IS CLEAR FROM THE FOLLOWING DISCUSSION THEREIN: 6. WITH REGARD TO QUESTION NOS. (5) AND (6) WHICH ARE ONLY FOR THE ASST. YRS. 1984-85 AND 1985-86 THE FUR THER ISSUE INVOLVED IS WHETHER ANY ADDITION TO THE ANNUA L RENTAL VALUE CAN BE MADE WITH REFERENCE TO ANY NOTI ONAL INTEREST ON THE DEPOSIT MADE BY THE TENANT. WHEN TH E ANNUAL VALUE IS DETERMINED UNDER SUB-CL. (A) OF SUB -S. (1) OF S. 23 WITH REFERENCE TO THE FAIR RENT THEN T O SUCH VALUE NO FURTHER ADDITION CAN BE MADE. THE FAIR REN T TAKES INTO CONSIDERATION EVERYTHING. THE NOTIONAL INTEREST ON THE DEPOSIT IS NOT ANY ACTUAL RENT RECE IVED OR RECEIVABLE. UNDER SUB-CL. (B) OF S. 23(1) ONLY T HE ACTUAL RENT RECEIVED OR RECEIVABLE CAN BE TAKEN INT O CONSIDERATION AND NOT ANY NOTIONAL ADVANTAGE. THE R ENT 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 RE NT. WHEREVER ANY SUCH PERQUISITE OR BENEFIT IS SOUGHT T O BE 21 RADIO COMPONENTS & TRANSISTORS CO LTD TREATED AS INCOME SPECIFIC PROVISIONS IN THAT BEHA LF 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 UN DER DIFFERENT HEADS FOR ADDING SUCH BENEFITS OR PERQUIS ITES AS INCOME WHILE COMPUTING INCOME UNDER THOSE HEADS E.G. SALARY BUSINESS. THE COMPUTATION OF THE INCO ME UNDER THE HEAD HOUSE PROPERTY IS ON A DEEMED BASIS. THE TAX HAS TO BE PAID BY REASON OF THE OWNERSHIP O F 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 SU CH EXCESS IS ALLOWED. THE DEDUCTIONS FOR MUNICIPAL TAX ES AND REPAIRS ARE NOT ALLOWED TO THE EXTENT THEY ARE BORNE BY THE TENANT. HOWEVER EVEN SUCH ACTUAL REIMBURSEMENTS FOR MUNICIPAL TAXES INSURANCE REPA IRS OR MAINTENANCE OF COMMON FACILITIES ARE NOT CONSIDE RED AS PART OF THE RENT AND ADDED TO THE ANNUAL VALUE. ACCORDINGLY THERE CAN BE NO SCOPE OR JUSTIFICATION WHATSOEVER FOR MAKING ANY ADDITION FOR ANY NOTIONAL INTEREST FOR DETERMINING THE ANNUAL VALUE. WHATEVER BENEFIT OR ADVANTAGE WHICH IS DERIVED FROM THE DEPO SITS - WHETHER BY WAY OF SAVING OF INTEREST OR OF EARNIN G INTEREST OR MAKING PROFITS BY INVESTING SUCH DEPOSI T - THE SAME WOULD BE REFLECTED IN COMPUTING THE INCOME OF THE ASSESSEE UNDER OTHER HEADS. IN OUR VIEW THER E IS NO SCOPE FOR MAKING ANY ADDITION ON ACCOUNT OF SO- CALLED NOTIONAL INTEREST ON THE DEPOSIT MADE BY THE TENANT SINCE THERE IS NO PROVISION TO THIS EFFECT IN S. 22 OR 23 OF THE IT ACT 1961. 16. IN FACT THIS IS THE VIEW TAKEN EVEN BY THE SUP REME COURT IN THE CASE OF SHIELA KAUSHISH VS. CIT [1981] 131 ITR 435 (SC) ON ACCOUNT OF SIMILARITY OF THE PROVISIONS UNDER THE M UNICIPAL ENACTMENTS AND SECTION 23 OF THE ACT. 17. IT IS ON THIS BASIS THAT IN THE PRESENT CASE T HE CIT (A) GAVE PRIMACY TO THE RATEABLE VALUE OF THE PROPERTY FIXED BY THE MUNICIPAL CORPORATION OF DELHI VIDE ITS ASSESSMENT ORDER DATE D 31.12.1996 AND ON THIS BASIS OPINED THAT THE ACTUAL RENT WAS MORE THAN THE SAID RATEABLE VALUE AND THEREFORE AS PER SECTION 2 3 (1)(B) THE ACTUAL RENT WOULD BE THE INCOME FROM HOUSE PROPERTY AND THERE COULD NOT HAVE BEEN ANY FURTHER ADDITIONS. 22 RADIO COMPONENTS & TRANSISTORS CO LTD 18. SINCE THE PROVISIONS OF FIXATION OF ANNUAL RENT UNDER THE DELHI MUNICIPAL CORPORATION ACT ARE PARI MATERIA OF SECTI ON 23 OF THE ACT WE ARE INCLINED TO ACCEPT THE AFORESAID VIEW OF THE CALCUTTA HIGH COURT IN SATYA CO. LTD. (SUPRA) THAT IN SUCH CIRCUMSTANCES THE ANNUAL VALUE FIXED BY THE MUNICIPAL AUTHORITIES CAN BE A RATIONALE YARDSTICK. HOWEVER IT WOULD BE SUBJECT TO THE COND ITION 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 CIRCUMSTANCES BECAUSE OF PASSAGE OF TIME VIZ. THE ANNUAL VALUE WAS FIXED BY THE MUNICIPAL AUTHORITIES MUCH EARLIER IN POINT OF TIME ON THE BASIS OF RENT THAN RECEIVED THIS MAY NOT PROVIDE A SAFE YAR DSTICK IF IN THE ASSESSMENT YEAR IN QUESTION WHEN ASSESSMENT IS TO B E MADE UNDER INCOME TAX ACT. THE PROPERTY IS LET-OUT AT A MUCH H IGHER RENT. THUS THE AO IN A GIVEN CASE CAN IGNORE THE MUNICIP AL VALUATION FOR DETERMINING ANNUAL LETTING VALUE IF HE FINDS THAT T HE SAME IS NOT BASED ON RELEVANT MATERIAL FOR DETERMINING THE FAI R RENT IN THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD F OR TAKING A DIFFERENT VALUATION. WE MAY PROFITABLY REPRODUCE TH E FOLLOWING OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF CORPORATION OF CALCUTTA VS. SMT. PADMA DEBI AIR 1962 SC 151: A BARGAIN BETWEEN A WILLING LESSOR AND A WILLING L ESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES MAY AF FORD A GUIDING TEST OF REASONABLENESS. AN INFLATED OR DE FLATED RATE OF RENT BASED UPON FRAUD EMERGENCY RELATIONS HIP AND SUCH OTHER CONSIDERATIONS MAY TAKE IT OUT OF TH E BOUNDS OF REASONABLENESS. 16. THUS THE RATEABLE VA LUE IF CORRECTLY DETERMINED UNDER 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 VALUE IS NOT BINDING ON THE ASSESSING OFFI CER. IF THE ASSESSING OFFICER CAN SHOW THAT RATEABLE VALUE UNDER MUNICIPAL LAWS DOES NOT REPRESENT THE CORRECT FAIR RENT THEN HE MAY DETERMINE THE SAME ON THE BASIS OF MATE RIAL/ EVIDENCE PLACED ON RECORD. THIS VIEW IS FORTIFIED B Y THE DECISION OF PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARUKA V. CIT [1975] 101 ITR 810 . 17. THE ABOVE DISCUSSION LEADS TO THE FOLLOWING CON CLUSIONS: 23 RADIO COMPONENTS & TRANSISTORS CO LTD (I) ALV WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNI NFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES (II) AN INFLATED OR DEFLA TED RENT BASED ON EXTRANEOUS CONSIDERATION MAY TAKE IT OUT OF THE BOU NDS OF REASONABLENESS (III) ACTUAL RENT RECEIVED IN NORMAL CIRCUMSTANCES WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED/DEFLA TED 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 RENT CONTROLLER THEN IT IS THE DUTY OF THE ASSESSING OFFICER TO DETERMIN E 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 S HALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. 19. WE MAY ALSO ADD THAT IN PLACE LIKE DELHI THIS HAS NOW BECOME REDUNDANT INASMUCH AS THE VERY BASIS OF FIXI NG PROPERTY TAX HAS UNDERGONE A TOTAL CHANGE WITH AMENDMENT OF THE MUNICIPAL LAWS BY AMENDMENT ACT 2003. NOW THE PROP ERTY TAX IS ON UNIT METHOD BASIS. 20. IN THE PRESENT CASE THE AO ADDED NOTIONA L INTEREST ON THE INTEREST FREE SECURITY FOR ARRIVING AT ANNUAL LETTI NG VALUE. SINCE THAT WAS NOT PERMISSIBLE THE EFFECT WOULD BE THAT SUCH ASSESSMENT WAS RIGHTLY SET ASIDE BY THE CIT (A) AND THE TRIBUNAL. THEREFORE THE ORDERS WOULD NOT CALL FOR ANY INTERF ERENCE. THESE APPEALS ARE THUS DISMISSED ON THIS GROUND. ONCE W E HOLD THIS THE VERY BASIS ADOPTED BY THE AO TO FIX ANNUAL LETT ING VALUE WAS WRONG AND THEREFORE NO FURTHER EXERCISE IN FACT IS REQUIRED BY US IN THESE APPEALS. 21. WE WOULD LIKE TO REMARK THAT STILL THE QUESTION REMAINS AS TO HOW TO DETERMINE THE REASONABLE/FAIR RENT. IT HAS B EEN INDICATED BY THE SUPREME COURT THAT EXTRANEOUS CIRCUMSTANCES MAY INFLATE/DEFLATE THE FAIR RENT . THE QUESTION WOULD THEREFORE BE AS TO WHAT WOULD BE CIRCUMSTANCES WHICH CAN BE TAKEN I NTO CONSIDERATION BY THE AO WHILE DETERMINING THE FAIR RENT. IT IS NOT NECESSARY FOR US TO GIVE ANY OPINION IN THIS BEHALF AS WE ARE NOT CALLED UPON TO DO SO IN THESE APPEALS. HOWEVER WE MAY OBSERVE THAT NO PARTICULAR TEST CAN BE LAID DOWN AND IT WOU LD DEPEND ON FACTS OF EACH CASE. WE WOULD DO NOTHING MORE THAN T O EXTRACT THE FOLLOWING PASSAGE FROM THE SUPREME COURT JUDGMENT I N THE CASE 24 RADIO COMPONENTS & TRANSISTORS CO LTD OF MOTICHAND HIRACHAND VS. BOMBAY MUNICIPAL CORPORATIO N AIR 1968 SC 441 : IT IS WELL-RECOGNIZED PRINCIPLE IN RATING THAT BOT H GROSS VALUE AND NET ANNUAL VALUE ARE ESTIMATED BY REFEREN CE TO THE RENT AT WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR VARIOUS METHODS OF VALUATION ARE APPLIED IN ORDER TO 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 WHERE THERE ARE NO RENTS BY REFERENCE TO THE ASSESS MENTS OF COMPARABLE PROPERTIES OR TO THE PROFITS CARRIED FROM THE PROPERTY OR TO THE COST OF CONSTRUCTION.' 22. WE HAVE ALSO TAKEN NOTE OF THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS (SUPRA) WHEREIN THE COURT HINTED THAT VARIOUS FACTORS MAY BECOME RELEVANT IN DETERMINING THE FAIR RENT . THE PRECISE OBSERVATIONS OF THE COURT IN THE SAID JUDGMENT ARE AS UNDER: AT THE COST OF REPETITION IT MAY BE MENTIONED THAT UNDER SECTION (23)(1)(A) THE ASSESSING OFFICER HAS TO DE CIDE THE FAIR RENT OF THE PROPERTY. WHILE DECIDING THE F AIR RENT VARIOUS FACTORS COULD BE TAKEN INTO ACCOUNT. IN SUCH CASES VARIOUS METHODS LIKE THE CONTRACTORS METHOD COULD BE TAKEN INTO ACCOUNT . IF ON COMPARISON OF THE FAIR RENT WITH THE ACTUAL RENT RECEIVED THE AS SESSING OFFICER FINDS THAT THE ACTUAL RENT RECEIVED IS MORE THAN THE FAIR RENT DETERMINABLE AS ABOVE THEN THE ACTUAL RE NT SHALL CONSTITUTE THE ANNUAL VALUE UNDER SECTION (23)(1)(B ) OF THE ACT. NOW APPLYING THE ABOVE TEST TO THE FACTS OF T HIS CASE WE FIND A CATEGORICAL FINDING OF FACT RECORDED BY T HE TRIBUNAL THAT THE ACTUAL RENT RECEIVED BY THE ASSES SEE WAS MORE THAN THE FAIR RENT. UNDER THE ABOVE CIRCUMSTAN CES IN VIEW OF THE SAID FINDING OF FACT WE DO NOT SEE ANY REASON TO INTERFERE. 16.3 FROM THE DECISION OF THE HON.FULL BENCH OF T HE HON. DELHI HIGH COURT IT IS CLEAR THAT FOR DETERMINATION OF THE FA IR RENT THE ASSESSING OFFICER HAS TO TAKE INTO ACCOUNT VARIOUS FACTORS INCLUDING STANDARD RENT. IF THE 25 RADIO COMPONENTS & TRANSISTORS CO LTD STANDARD RENT IS NOT FIXED THEN THE PROCEDURE PROVI DED UNDER THE RENT CONTROL ACT FOR FIXATION OF STANDARD RENT HAS TO BE TAKEN INTO CONSIDERATION. WE MAY MENTION THAT MUNICIPAL VALUE OR STANDARD RE NT ITSELF IS NOT SOLE BINDING FACTORS ON THE AO BUT THESE ARE ONLY GUIDI NG FACTOR FOR DETERMINING THE REASONABLE EXPECTED RENT TO BE FETCHED BY HE P ROPERTY AS CONTEMPLATED U/S 23 (1)(A). IF IN THE GIVEN CASE THE AO FINDS T HAT THE MUNICIPAL VALUE IS NOT BASED ON RELEVANT MATERIAL FOR DETERMINING FAI R RENT IN THE MARKET AND THERE IS A SUFFICIENT MATERIAL ON RECORD FOR TAKING DIFFERENT VALUATION THEN THE AO CAN DETERMINE THE FAIR RENT BY INFLATING OR DEF LECTING THE MUNICIPAL VALUE OR STANDARD RENT AS THE CASE MAY BE BY TAKING INT O ACCOUNT THE RELEVANT MATERIAL IN THIS REGARD. AS OBSERVED BY THE HON. DE LHI HIGH COURT IF THE RATABLE VALUE IS CORRECTLY DETERMINED UNDER THE MU NICIPAL LAW THE SAME CAN BE TAKEN AS ANNUAL LETTING VALUE U/S 23(1)(A) OF T HE ACT. HOWEVER THE RATABLE VALUE IS NOT A BINDING ON THE AO IF THE AO CAN SHOW THAT THE RATABLE VALUE UNDER MUNICIPAL LAW DOES NOT REPRESEN T THE CORRECT FAIR RENT. IF THE AO FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE FAIR MARKET RENT/MARKET RENT BECAUSE OF THE REASON THAT THE AS SESSEE HAS RECEIVED ABNORMALLY HIGH INTEREST FREE SECURITY DEPOSITS AND BECAUSE OF THAT REASON ACTUAL RENT RECEIVED IS LESS THAN THE RENT WHICH T HE PROPERTY MIGHT FETCH HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF. 16.4 HOWEVER WHEN THE SAME PREMISES HAS BEEN LET O UT BY THE SUB TENANT AND FETCH A HIGHER RENT THEN THE SAME CAN BE TAKEN AS DETERMINATIVE FACTOR TO ARRIVE AT FAIR MARKET RENT. IF THE ASSESSING OFFICER FINDS THAT THE RATABLE VALUE UNDER THE MUNICIPAL LAW DOES NOT REPRESENT C ORRECT FAIR RENT AND THEN HE MAY DETERMINE THE SAME ON THE BASIS OF MATERIAL/ EVIDENCE PLACED ON RECORD. THE HON. FULL BENCH OF THE DELHI HIGH COURT HAS OBSERVED IN PARAGRAPHS 21 OF THE DECISION THAT TO DETERMINE TH E REASONABLE/FAIR RENT 26 RADIO COMPONENTS & TRANSISTORS CO LTD EXTRANEOUS CIRCUMSTANCES MAY INFLECT OR DEFLECT THE FAIR RENT WHICH CAN BE TAKEN INTO CONSIDERATION BY THE AO. 16.5 HENCE THE RENT RECEIVED BY THE SUB TENANT ITS ELF CANNOT BE TAKEN AS FAIR MARKET RENT AS CONTEMPLATED IN SEC. 21(A). HOWEVER THE SAID RENT CAN BE A RELEVANT DETERMINATIVE FACTOR FOR DETERMINING THE F AIR MARKET RENT. WE FURTHER NOTE THAT IN THE CASE IN HAND THE ASSESSING OFFICE R HAS TAKEN INTO CONSIDERATION AN AGREEMENT DT 10.1.2004 ENTERED INTO BY THE SUB T ENANT FOR FURTHER LETTING OUT THE PROPERTY IN QUESTION WHICH IS SUBSEQUENT TO TH E ASSESSMENT YEARS 2001-02 AND 2002-03. EVEN OTHERWISE THE RENT RECEIVED BY THE SUB TENANT VIDE AGREEMENT DATED 2.1.2004 IS NOT FOR THE ENTIRE PROP ERTY IN QUESTION BUT ONLY FOR A PART THAT TOO AFTER CARRY OUT THE SOME FURNISHING W ORK. THEREFORE THE SAME CANNOT BE ADOPTED AS FAIR MARKET RENT FOR THE ENTIR E PROPERTY. THUS WHILE COMPUTING THE ALV THE ASSESSING OFFICER HAS TO TAKE INTO ACCOUNT ALL THE FACTS INCLUDING ANY SPECIFIC PORTION/PART OF THE PROPERTY WAS LET OUT ETC. 17 WE MAY OBSERVE THAT THE RENT AGAINST WHICH THE P ROPERTY WAS LET OUT BY THE SUB TENANT IS ONE OF THE VERY RELEVANT FACTORS FOR DETERMINATION OF THE FAIR MARKET RENT BUT NOT THE SOLE AND ALONE. ACCORDINGLY WE SET SIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE ISSUE TO THE RECOR D OF THE ASSESSING OFFICER TO DETERMINE THE FAIR MARKET RENT U/S 23(1)(A) IN VIEW OF THE DECISION OF THE FULL BENCH OF THE HONBLE DELHI HIGH COURT (SUPRA) 18 NEXT ISSUE IS REGARDING DISALLOWANCE OF EXPENSES OF INTEREST ON BORROWED MONEY FOR PAYMENT OF LEASE PREMIUM AS WELL AS LEASE RENT. 18.1 AS FAR AS THE ISSUE OF LEASE RENT PAID BY THE ASSESSEE CLAIMED AGAINST THE RENTAL INCOME THIS ISSUE IS COMMON IN ALL THE ASSE SSMENT YEARS WHEREAS S INTEREST PAID ON THE BORROWINGS USED FOR PAYING THE PREMIUM OF THE PROPERTY IN QUESTION IS COMMON ONLY IN ASSESSMENT YEARS 2001-02 AND 2002-03. 27 RADIO COMPONENTS & TRANSISTORS CO LTD 18.2 THE ASSESSING OFFICER DISALLOWED THE CLAIM OF EXPENSES RELATING TO THE INTEREST PAID ON THE BORROWED FUNDS UTILISED FOR PA YMENT OF LEASE PREMIUM AND LEASE RENT PAID BY THE ASSESSEE. ON APPEAL THE CI T(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 19 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AS PER THE AGREEMENT DATED 30.3.95 WE FIND THAT THE ASSESSEE ACQUIRED THE LEA SE RIGHTS IN THE PROPERTY BY PAYING NON REFUNDABLE PREMIUM OF `. 3.75 CRORES AN D LEASE RENT OF ` 4 400/- PER MONTH. WHEN THE RENTAL INCOME HAS BEEN ASSESSED AS INCOME FROM HOUSE PROPERTY AND THE ASSESSEE BEING THE DEEMED OWNER OF THE PROPERTY U/S 27(IIIB) THEN LEASE PREMIUM PAID BY THE ASSESSEE IS ONLY FO R ACQUIRING THE LEASEHOLD RIGHTS OF THE PROPERTY. FURTHER WHEN THE PREMIUM IS NOT REFUNDABLE AND IS PAID BY UTILISING THE BORROWED FUNDS THEN THE INTEREST PAID OR PAYABLE ON SUCH BORROWED CAPITAL IS ALLOWABLE U/S 24(B) OF THE I T ACT. 19.1 AS REGARDS THE LEASE RENT EXPENSES IS CONCERNE D SINCE THERE IS NO PROVISION FOR ALLOWING OF ANY OTHER CLAIM OF EXPEN DITURE ONCE THE STANDARD DEDUCTION OF 30% IS ALLOWED U/S 24 OF THE I T ACT; THEREFORE THE SAME IS NOT ALLOWABLE. THEREFORE THE ISSUE INTEREST PAID IS ALLOWED AND T HE ISSUE OF LEASE RENT PAID IS DISALLOWED. 20 NEXT ISSUE IS REGARDING BAD DEBTS. THIS ISSUE IS ONLY FOR THE ASSESSMENT YEAR 2005-06 20.1 THE ASSESSEE HAS CLAIMED BAD DEBTS OF RS. 25 4 3 456/- BEING ADVANCES TO TWO SISTER CONCERNED M/S ASHA MARINE PRODUCTS P LT D. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE AMOUNT OF SUCH BAD 28 RADIO COMPONENTS & TRANSISTORS CO LTD DEBTS HAS NOT BEEN TAKEN IN THE COMPUTATION OF THE INCOME OF THE ASSESSEE IN THE YEAR EARLIER. THE ASSESSING OFFICER FURTHER NO TED THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE CONCERNED LOANS GIVEN TO GROUP CO MPANY CONSTITUTES TRADING LOSS. ON APPEAL THE CIT(A) CONFIRMED THE ACTION O F THE ASSESSING OFFICER. 21 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ADVANCE WAS GIVEN TO M/S ASHA MA RINE PRODUCTS P LTD. FROM THE BUSINESS INCOME DERIVED BY THE ASSESSEE AND NOT FROM ITS CAPITAL. THUS THE AMOUNT ADVANCED TO THE GROUP COMPANY IN THE PAST HAD BEEN SUBJECTED TO TAX. DURING THE YEAR THE ASSESSEE HAS WRITTEN OFF THIS S UNDRY BALANCE AS UNRECOVERABLE AS M/S ASHA MARINE PRODUCTS P LTD HA S APPROACHED THE BIFR. HAVING CONSIDERED THE RIVAL CONTENTION AND RELEVAN T MATERIAL ON RECORD WE NOTE THAT THE ASSESSEE HAS GIVEN THE ADVANCE TO THE SIST ER CONCERN; THEREFORE IT IS A TRADING DEBT. FURTHER THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY SINCE MANY YEARS AND THERE IS NO COMMERCIAL EXPEDIE NCY FOR GIVING LOANS TO THE GROUP COMPANY. ACCORDINGLY THE CONDITIONS AS PROVI DED U/S 36 ARE NOT SATISFIED FOR ALLOWING THE CLAIM OF BAD DEBTS. SINCE THE ASSE SSEE FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY FOR GIVING SUCH LOANS; THEREF ORE THE CLAIM OF BUSINESS LOSS IS ALSO NOT JUSTIFIED EXCEPT FOR THE AY 2005-0 6. 21.1 FOR THE ASSESSMENT YEAR 2005-06 WHEN THE ASSE SSEE HAS WRITTEN BACK A SUM OF ` 48 50 000/- AS SUNDRY BALANCES BEING ADV ANCES BECOME NON-PAYABLE; THEREFORE FOR THE ASSESSMENT YEAR 2005-06 THE CLA IM OF BAD DEBTS/BUSINESS LOSS OF `. 25 43 456/- IS ALLOWABLE TO BE SET OFF OF AGA INST THE WRITTEN BACK AMOUNT. 22 NEXT ISSUE IS REGARDING INTEREST U/S 234D. THIS ISSUE IS COMMON FOR ALL THE ASSESSMENT YEAR EXCEPT FOR THE AY 2005-06. 29 RADIO COMPONENTS & TRANSISTORS CO LTD 23 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ELEVANT RECORD. . WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S BAJAJ HINSTUTHAN LTD. IN THE INCOM E TAX APPEAL NO. 198 OF 2009 VIDE ORDER DATED 15.4.2009 HELD THAT T HE PROVISIONS OF SECTION 234D CANNOT BE APPLIED PRIOR TO 1.6.2003. THE HON. JURISDICTIONAL HIGH COURT HAS OBSERVED IN PARAGRAPH 5 AS UNDER: 5. SO FAR AS THE LAST QUESTION IS CONCERNED IT IS SEEN THAT THE SUBJECT PROVISION CAME ON STATUTE BOOK W.E.F 1.6.20 03. IF THAT BE SO THE SAID PROVISION DOES NOT HAVE RETROSPECTIVE EFFE CT. IN THIS VIEW OF THE MATTER WE DO NOT SEE APPEAL GIVING RISE TO ANY SUBSTANTIAL QUESTION OF LAW. APPEAL IS THEREFORE DISMISSED IN LIMINE WITH NO ORDER AS TO COSTS . 24 IN VIEW OF THE ABOVE DECISION OF THE HON. JURISD ICTIONAL HIGH COURT WE DIRECT THE A.O. TO LEVY THE INTEREST UNDER SECTION 234D ONLY FOR THE ASSESSMENT YEARS COVERED BY THE SAID PROVISION. 25 NEXT GROUND RAISED BY THE ASSESSEE FOR THE ASSES SMENT YEAR 2005-06 IS AS UNDER: THE LD CIT(A) ERRED IN CONFIRMING THE ASSESSMENT OF SUNDRY BALANCES WRITTEN BACK AS INCOME FROM OTHER SOURCES INSTEAD OF AS BUSINESS INCOME AND HE FAILED TO TAKE INTO CONSIDER ATION THE FACT THAT THE ADVANCES WERE MADE DURING THE COURSE OF BU SINESS ACTIVITIES . 25.1 DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAS WRITTEN BACK A SUM OF `. 48.50 LACS BEING SUNDRY BALANCES. THE ASSESS ING OFFICER NOTICED THAT SINCE THESE BALANCES WERE REPRESENTING UNSECURED INTEREST FREE ADVANCES NOT PAYABLE BY THE ASSESSEE AND THE ASSESSEE HAS NOT CARRIED OU T ANY BUSINESS ACTIVITY; THEREFORE THIS WRITTEN AMOUNT WAS TREATED AS INCOM E FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. ON APPEAL THE CIT(A) HAS CON FIRMED THE ACTION OF THE ASSESSING OFFICER. 30 RADIO COMPONENTS & TRANSISTORS CO LTD 26 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS TREATED THESE SUNDRY BALANCES AS INCOME BECAUSE THESE AMOUNTS WERE BECOME TIME BARRED AND W AS NOT PAYABLE BY THE ASSESSEE THEREFORE THE UNILATERAL WRITING BACK THE AMOUNT SHOULD BE TREATED AS CAPITAL RECEIPT AND CANNOT BE ASSESSED TO TAX AND I N ANY CASE IF IT IS ASSESSABLE THEN IT SHOULD BE UNDER THE HEAD BUSINESS INCOME AND CONSEQUENTLY THE OTHER CLAIM OF THE ASSESSEE SHALL BE ALLOWED TO BE SET OF F OF AGAINST THIS INCOME. 26.1 THERE IS NO DISPUTE THAT THERE IS NO BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE FOR THE LAST MANY YEARS AND DISCONTINUED T HE BUSINESS; THEREFORE IF THE ASSESSEE GET SOME BENEFITS BECAUSE OF NON-PAYABLE L IABILITY WRITTEN BACK THEN THE SAME HAS BEEN RIGHTLY ASSESSED BY THE LOWER AUT HORITIES AS INCOME FROM OTHER SOURCES. WE DO NOT FIND ANY ERROR OR ILLEGAL ITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE; ACCORDINGLY UPHELD THE SAME. 27 NEXT GROUND RAISED BY THE ASSESSEE FOR THE ASSES SMENT YEAR 2005-06 AND 2006-07 IS AS UNDER: THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST THE BUSINESS INCOME O F THE CURRENT YEAR. 27.1 THIS ISSUE OF DISALLOWANCE OF SET OFF OF BROUG HT FORWARD BUSINESS LOSS IS COMMON FOR BOTH THESE ASSESSMENT YEARS. THE ASSESSI NG OFFICER DISALLOWED THE CLAIM OF BROUGHT FORWARD LOSS ON THE GROUND THAT NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE DURING THESE YEARS. THE CIT(A) HAS CONFIRMED THE DISALLOWANCE ON IDENTICAL GROUND. 28 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL AS THE RELEVANT MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THERE IS NO BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE; THEREFORE BROUGHT FORWARD BUSINES S LOSS CANNOT BE SET OFF OF 31 RADIO COMPONENTS & TRANSISTORS CO LTD AGAINST THE INCOME FROM HOUSE PROPERTY. ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A). 29. THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 30 TH DAY OF DEC 2011. SD/ SD/ ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED:30 TH DEC 2011 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI