By Jagdish D. Shah
Jagdish T. Punjabi
Chartered Accountants
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New Page 1Part B :
UNREPORTED DECISIONS
(Full texts of the following Tribunal decisions are available at
the Society’s office on written request. For members desiring that the Society
mails a copy to them, Rs.30 per decision will be charged for photocopying and
postage.)
14 DCIT v. Reclamation
Realty India Pvt. Ltd.
DCIT v. Reclamation
Properties India Pvt. Ltd.
DCIT v. Reclamation Real
Estate Co. India Pvt. Ltd.
ITAT ‘D’ Bench, Mumbai
Before N. V. Vasudevan (JM)
and
Pramodkumar (AM)
ITA No. 1411/Mum./2007,
1412/Mum./2007 and 1413/Mum./2007
A.Y. : 2004-05. Decided on :
26-11-2010
Counsel for assessee/revenue
:
Aarati Vissanji/Jitendra
Yadav
Income-tax Act, 1961, S. 23
— For applying provisions of S. 23(1)(a) of the Act, municipal valuation/ratable
value should be the determining factor — Since the rent received by the assessee
was more than the sum for which the property might reasonably be expected to let
from year to year, the actual rent received should be the annual value of the
property u/s.23(1)(b) of the Act — Notional interest on interest-free security
deposit/rent received in advance should not be added to the same in view of the
decision of the Bombay High Court in the case of J. K. Investors (Bombay) Ltd.
Per Bench :
Facts :
M/s. Reclamation Real Estate
Co. Pvt. Ltd., the assessee, owned premises admeasuring 15,645 sq.ft. situated
on 9th floor of a building known as Mafatlal Centre (‘the property’). It had let
out the property to J. P. Morgan Chase Bank on an annual rent of Rs.2,87,87,660.
The lease commenced from 17-12-1998 for a period of 152 weeks up to November
2001. The lease was thereafter renewed for a further period of 156 weeks from
November 2001. The lease was to expire in November 2004. When the lease was
renewed in April 2002, the entire rent for the period of lease i.e., for 156
weeks, was paid by the tenant. This was a sum of Rs.8,58,91,050. In addition,
the tenant also paid a refundable interest-free security deposit of
Rs.2,60,00,000. Rate of rent at Rs.2,87,87,660 (being rent for the previous year
2003-04) in terms of rate per sq.ft. worked out to Rs.152.50 per month.
Municipal valuation of the property was Rs.27,50,835.
Since the amount of rent
received (Rs.2,87,87,660) was more than the municipal valuation of the property,
the assessee adopted actual rent received as the annual value of the property.
According to the AO, the
municipal valuation as adopted by the municipal authorities did not reflect the
true sum for which the property might reasonably be expected to let from year to
year. He held that the rent of Rs.152.50 per sq.ft. was too low and the rent was
reduced due to the fact that the rent for the entire period of lease was paid in
advance and tenant had also given an interest-free security deposit. He
estimated the annual value by allocating notional interest on rent received in
advance and interest-free security deposit and arrived at an annual value of
Rs.3,42,23,856. He held that he was not adding notional interest on security
deposit and rent received in advance to the actual rent received for determining
annual value u/s.23(1)(b) of the Act, but was treating the same as the sum for
which the property might reasonably be expected to let from year to year
u/s.23(1)(a) of the Act.
Aggrieved the assessee
preferred an appeal to CIT(A) who allowed the appeal.
Aggrieved the Revenue
preferred an appeal to the Tribunal.
Held :
The Tribunal considered the
original provisions of S. 23 of the Act and the amendments made thereto by
Taxation Laws Amendment Act, 1975 w.e.f. 1-4-1976 and noted that :
(i) Circular No. 204,
dated 24-7-1976 gives an indication as to how the expression ‘the sum for
which, the property might reasonably be expected to let from year to year’
used in S. 23(1)(a) has to be interpreted;
(ii) the Calcutta High
Court in CIT v. Prabhabati Bansali, (141 ITR 419) concluded that the
municipal valuation and the annual value u/s. 23(1)(a) are one and the same;
(iii) the decision of
the Calcutta High Court has been followed by the Bombay High Court in the
case of M. V. Sonawala v. CIT, 177 ITR 246 (Bom.);
(iv) the Bombay High
Court has in the case of Smitaben N. Ambani v. CWT, 323 ITR 104 (Bom.) in
the context of Rule 1BB to the Wealth Tax Rules, which uses the same
expression ‘the sum for which the property might be reasonably expected to
let from year to year’ as is found in S. 23(1)(a) of the Act, held that
ratable value as determined by the municipal authorities shall be the
yardstick.
The Tribunal held that :
(i) the charge u/s.22 is
not on the market rent but is on the annual value and in the case of
property which is not let out, municipal value would be a proper yardstick
for determining the annual value. If the property is subject to rent control
laws and the fair rent determined in accordance with such law is less than
the municipal valuation, then only that can be substituted by the municipal
value;
(ii) the Bombay High
Court which is the jurisdictional High Court has held that ratable value
under the municipal law has to be adopted as annual value u/s.23(1)(a) of
the Act. The decision of the Mumbai Bench of ITAT in the case of Makrupa
Chemicals (108 ITD 95) (Mum.), following the decision of Patna High Court in
the case of Kashi Prasad Katarvk
