(a) S. 23 — Notional interest on interest- free deposit cannot be considered for determining annual letting value. (b) Standard rent under Rent Control Act, can be taken as ALV; in absence of standard rent, municipal rateable value to be taken — If muni

During the relevant assessment year, the assessee had let out
a property in New Delhi for an annual rent of Rs.0.60 lacs and took security
deposit of Rs.370.60 lacs. The assessee computed the annual letting value of the
said property u/s.23(1)(b) by taking the rent received at Rs.60,000 and offered
the same to tax in its return of income. It submitted before the Assessing
Officer that the Municipal Rateable Value (MRV) of the said property as per
Delhi Municipal Authority was Rs.22,230 only and, therefore, the higher of the
two had to be taken into consideration while computing the annual letting value
u/s.23(1)(b). The Assessing Officer held that there was an interest-free
security deposit of Rs.370.60 lacs and the interest had to be considered while
arriving at the fair market value of the property. He further held that S.
23(1)(b) was not applicable to the facts of the case and only S. 23(1)(a) had to
be considered. Further, the Assessing Officer relied upon some property
newspaper and computed the annual rent at Rs.14.40 lacs. The CIT(A) upheld the
order.

The Tribunal held in the assessee’s favour. The Tribunal
noted as under :

The Assessing Officer cannot consider notional interest on
deposit while arriving at the fair market value u/s.23(1)(b) of the Act. The
judgment of the jurisdictional High Court in case of J. K. Investors (Bombay)
Ltd. (2001) 248 ITR 723/112 Taxman 107 has been approved by the Supreme Court.