Mr.Sitakant M Wagh E-419, Floral Deck Plaza, Central MIDC Road,Andheri (E), Mumbai-400093 Vs. Asstt. Commissioner of Income Tax-8(1), Aayakar Bhavan, M K Road, Mumbai-400020
July, 21st 2014
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
.. , .. ,
./I.T.A. Nos.1877 & 6826/Mum/2011
( / Assessment Years :2006-07 & 2007-08)
Mr.Sitakant M Wagh / Asstt. Commissioner of Income
E-419, Floral Deck Plaza, Vs. Tax-8(1),
Central MIDC Road,Andheri (E), Aayakar Bhavan, M K Road,
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. : AAPW1725A
/ Appellant by : Shri Sunil R Bhandari
/Respondent by : Shri Prakash L Pathade
/ Date of Hearing
/Date of Pronouncement : 17.7.2014
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
Both these appeals have been filed by the Assessee and they are directed
against the two separate orders dated 28.12.2010 & 19.7.2011 passed by Ld.
CIT(A)-16, Mumbai and they relate to the assessment years 2006-07 and 2007-
08 respectively. Since identical issue is urged in both the appeals, they were
heard together and for the sake of convenience, these appeals are being decided
by this common order.
2. The solitary issue urged for our adjudication in both the appeals is that
Whether the taxing authorities are justified in estimating the annual value of the
house property at a hypothetical figure disregarding the rent received by the
Assessee, when it is more than the municipal ratable value.
2 I.T.A. Nos.1877 & 6826/Mum/2011
3. The facts relating to the issue under consideration are stated in brief. The
Assessee is a co-owner of the flat located at 12A. Lohtse Co-op Hsg Soc. Ltd,
Ruia Park, Juhu, Mumbai-400049. The Assessee owns 50% share and other
50% share is held by his wife. In both the years the Assessee declared rent
received from the property as his annual value. The Assessee had received a
sum of Rs.1,20,000/- as his share of rental income. The AO took the view that
the rental income declared by the Assessee is not representing Fair Market Value
(FMV) in terms of section 23 of the Income Tax Act, 1961 (the Act). By
considering the value of investment made in purchase of flat, the AO estimated
the rental income at Rs.12,00,000/- in both the assessment years and
accordingly computed the "income from house property". In the appeal filed by
the Assessee, the ld. CIT(A) reduced the annual value estimated by Assessing
officer in assessment year 2006-07 to Rs.10 lakhs, but confirmed the order of
AO for assessment year 2007-08. Aggrieved by the orders of ld. CIT(A), the
Assessee has filed these appeals before us for both the years.
4. We have heard the rival contentions and perused the record. At the time
of hearing the ld. Counsel placed reliance on the decision rendered by the Co-
ordinate Bench of the Tribunal in the case of DCIT V/s Reclamation Realty India
Pvt.Ltd reported in 2010(ID2)GJX-0869-TBOM and contended that the matter is
covered in favour of the Assessee by the said decision. We also heard the ld.
DR. We notice that the co-ordinate Bench of the Tribunal in the case of
Reclamation Reality India Pvt Ltd (supra) followed the decisions rendered by the
Jurisdictional High Court in the case of M V Sonavala V/s CIT, 177 ITR246(Bom)
and in the case of Smt.Smitaben N Ambani V/s CWT (2010)323 ITR 0104(Bom).
3 I.T.A. Nos.1877 & 6826/Mum/2011
We, on a perusal of the case law relied by the assessee, observe that the
Tribunal has considered the decisions rendered by Hon'ble Supreme Court, High
Courts and the Co-ordinate Bench of Mumbai Tribunal. For the sake of
convenience, we extract below the operative portion of the order:-
"The Hon'ble Bombay High Court in the case of Smitaben N Ambani Vs.
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 Sec.
23(1)(a) of the Act, held that rateable value as determined by the
Municipal authorities shall be the yardstick. The Learned counsel for the
assessee relied on several other judicial pronouncements in support of this
contentiion that the Municipal value should be the basis of determining
the annual value. We are not making reference to those decisions, since,
in our opinion the aforesaid pronouncement of Hon'ble Bombay High
Court considers the decisions of Hon'ble Calcutta High Court which in turn
has considered the law laid down by the Hon'ble Apex Court on the issue.
It is clear from the aforesaid exposition of law that 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. The decision in the case of Mrs. Sheila Kaushish (131
ITR 435)(SC) mentions standard rent under the Rent Control Act as one of
the yardsticks. We also find from the decision of Hon'ble Calcutta High
Court in the case of Smt. Prabhabati Bansali (141 ITR 419) that standard
rent, if it does not exceed the municipal valuation alone can be adopted in
the place of municipal valuation.
As far as decisions relied upon by the learned D.R, in the case of Baker
Technical Services (P) Ltd 126 TTJ (Mumbai)(TM) 455, we find that the
same is based on the decision of the ITAT Mumbai bench in the case of
Makrupa Chemicals (108 ITD 95) (Mum.). In the case of Makrupa
Chemicals, in para 14 of the decision it has been clearly held that
rateable value, if correctly determined under the municipal laws can be
taken as ALV u/s 23(1)(a) of the Act and in this regard the decision of the
Hon'ble Supreme Court in the case of Sheila Kaushish (supra) has been
followed. It has been further observed that the rateable value is not
binding on the AO, if the AO can show that the rateable value under
municipal law does not represent the correct fair rent. In coming to the
above conclusion, the Bench has followed the decision of Patna High
Court in the case of Kashi Prasad Katarvka v. CIT, (101 ITR 810) (Pat.).
We find that the Bombay High Court which is the jurisdictional High Court
has held that the rateable value under the municipal law has to be
adopted as annual value u/s 23(1)(a) of the Act and therefore the
4 I.T.A. Nos.1877 & 6826/Mum/2011
decision in the case of Makrupa Chemicals (supra) to the contrary cannot
be followed. Further in para 13 of its decision in the case of Makrupa
Chemicals, the Tribunal has very categorically held that if ratable value is
less than the standard rent (where the property is subjected to rent
control laws) then only standard rent has to be taken. In coming to the
above conclusion the Tribunal has followed the decision of the Hon'ble
Supreme Court in the case of Dewan Daulat Rai kapoor (122 ITR 700).
Thus the decision in the case of Baker Technical Services (P) Ltd. (supra),
being contrary to the decision of the Bombay High Court, in our view
cannot be followed.
The decision relied upon by the learned D.R in the case of Fizz Drinks
Ltd. (95 TTJ (Del) 249) and Tivoli Investment & Trading Co. (P) Ltd. (90
ITD 163) are distinguishable on facts. The facts in that case were that
the agreeed rent was Re 1/- per month and interest free security deposit
of Rs.1,62,36,000/- was taken by the owner. It was this factor which
weighed in the mind of the Tribunal as is evident from the observations in
para 8 of its order where they have held that any fair judicial
administration would not allow such things to happen. The decision in the
case of Trivoli Investment & Trading Co. (P) Ltd (supra) is again
distinguishable because it was a case where there was no rent and only
huge interest free security deposit was taken by the owner.
For the reasons given above, we hold that the annual value (also referred
to as municipal valuation/ratable value) adopted by the municipal
authorities in respect of the property at Rs.27,50,835 should be the
determining factor for applying the provisions of S. 23(1)(a) of the Act.
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. We hold accordingly".
5. In the instant cases, we notice that the AO has determined the Fair rental
value as Rs.12,00,000/- in both the years by considering the value of investment
of the flat. The Ld CIT(A) has slightly reduced the same in AY 2006-07 and
confirmed the same in AY 2007-08. Thus, we notice that the tax authorities
have considered the value of property only for determining the Annual Rental
value. The judicial pronouncements that were considered by the co-ordinate
bench of Tribunal in the case of Reclamation Reality India Pvt Ltd (supra)
5 I.T.A. Nos.1877 & 6826/Mum/2011
clarifies that the Standard rent / Municipal rateable value has to be considered as
fair rental value. In the instant case, there is no dispute that the rent received
by the assessee is more than the municipal rateable value. Hence, we are of the
view that, in the facts and circumstances of the case, the rent received by the
assessee has to be taken as the Annual value u/s 23 of the Act. Accordingly, we
set aside the orders of the Ld CIT(A) in both the years and direct the AO to
delete the adjustment made to the Annual value declared by the assessee in
both the years.
6. In the result, both the appeals filed by the Assessee are allowed.
The above order was pronounced in the open court on 17th July, 2014.
17th July, 2014
(.. / H.L. KARWA) (.. ,/ B.R. BASKARAN)
/ PRESIDENT /Accountant Member
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
, /ITAT, Mumbai