ACIT-3(1)(1), MUMBAI vs. M/S GEMTEX MERCHANTS PRIVATE LIMITED, MUMBAI

This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax/NFAC, Delhi dated 20.02.2023 for assessment year 2012-13.

The first ground of appeal

We have heard both the parties and perused the records. We are not repeating the facts since there is no dispute about it and for the sake of brevity. It is noted that the Ld. CIT(A) while dealing with this ground of appeal has followed the order of the Tribunal in assessee’s own case for AY. 2010-11. In this context it is noted that the AO also for this assessment year i.e. (AY. 2012-13) on this issue has followed the action of his predecessor for the earlier year AY. 2010-11. Therefore, since there is no change in facts or law, the decision rendered by Tribunal in assessee’s own case for AY 2010-11 has been rightly followed by the Ld. CIT(A) for this assessment year. The Tribunal in the year AY. 2010-11 on this issue in assessee’s own case for AY. 2010- has held as under: - M/s. Gentex Merchants Pvt. Ltd. “31. On the question whether in a case where interest free advance are given by the tenant could notional interest on such advance be taken for the purpose of arriving at the Annual Value of the property, the CIT(A) held that notional interest cannot be taken into account for the purpose of determining annual value of property. The CIT(A) relied on the decision of the Hon’ble Calcutta High Court in the case of CIT Vs Hemraj Mahavir Prasad 279 ITR 522(Cal) wherein it was held that notional interest on interest free loan given by the tenant would neither be a determining factor nor a component to be considered in assessing the true & fair annual value of house property in terms of Section 23 of the Income-tax Act, 1961. The Hon'ble Calcutta High Court in the case of CIT Vs. Satya & Co. Ltd. 75 Taxman 193(Cal) has held that notional interest cannot be added to the interest free security deposit to arrive at the annual value of the property while determining income under the head “income from House Property”. Similar view was also expressed by the Bombay High Court in the case of CIT Vs J.K. Investors (Born.) Ltd 248 ITR 723 and by the Delhi High Court in the case of CIT Vs Asian Hotels Limited 168 Taxman 59. The CIT(A) found that the Full Bench of the Delhi High Court in its decision in the case of CIT Vs M.K. Subba 333 ITR 38(del) held that in arriving at the fair rent there is no provision in law for inclusion of any notional interest on interest free deposit received from tenant. The Full Bench of the High Court specifically rejected the Revenue's contention that a reasonable interest can be included in arriving at the true & correct annual value of a house property. The Full Bench of the Delhi High Court thereafter made the following observation:

We are of the view that the in the light of the judgments of the Calcutta, Bombay & Delhi High Court, in arriving at the annual value of a house property for the purposes of Section 23 of the Income-tax Act, 1961, notional interest on the interest free loan or deposit cannot be considered to be a relevant factor. Such notional interest cannot be included in the fair rent of the property. In the circumstances, the CIT(A) was fully justified in holding that AO was not justified in enhancing the annual value of the property by making addition to the actual rent received equivalent to 10% of the interest free loan received by the assessee from its holding company. The addition made by the AO was therefore rightly held by the CIT(A) to be unsustainable in view of the decision of the Full Bench of the Delhi High Court in the case of CIT Vs M.K. Subba (supra.). We hold accordingly.”

Since the Ld. CIT(A) has followed the decision of the Tribunal in assessee’s own case for AY. 2010-11 on this issue and since there is no change in facts or law, we confirm the action of Ld.CIT(A) and dismiss this ground of appeal of the revenue.

Ground no. 2 is against the action of the Ld. CIT(A) deleting the addition by the AO in treating the income of Rs.24,00,000/- received towards service charges under the head “income from house property”.

Brief facts are that the assessee had charged fixed amount of Rs.2 Lakhs plus applicable service taxes per-month to the tenant for services rendered by it in addition to the rent paid (supra). And the AO held that the service fees shown by the assessee is integral part of the rental income since the appellant company is providing services to a single tenant and the service fee received is appurtenant to the house- property and hence cannot be segregated with the rental income of the assessee. Thus the AO treated the service fee amounting to Rs.24,00,000/- as “income from house property” and therefore disallowed business expenses claimed against the said receipt. The AO accordingly passed the assessment order assessing the income from house property at Rs.14,38,94,120/- (Rs.14,14,94,120 + Rs.24,00,000) against which municipal taxes and standard deduction of 30% were allowed and the remaining was subject to tax. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same by holding as under: - “5.1 Ground No. 2: In this ground the appellant is contesting the Ld. AO treating the service charges received by the appellant amounting to Rs.24,00,000/- as income from house property instead of income from business and profession as declared in the Return of income. This issue is also no longer res-integra as it has been raised in the case of the appellant in the assessment year 2010-11. The Ld. CIT (Appeals Vill, Kokata vide order dated 04.03.2014 has allowed the appeal of the appellant on this M/s. Gentex Merchants Pvt. Ltd. issue. In the appeal filed by the department against the said order of the Ld. CIT (Appeals), the jurisdictional bench of the Hon'ble ITAT has upheld the view of the Ld. CIT (Appeals) and dismissed the appeal of the department on this ground. In view of the same, respectfully following the orders of my predecessor Ld. CIT (Appeals) and the order of the jurisdictional bench of the Hon'ble ITAT, the appeal on this ground is allowed.”

Aggrieved, the revenue is before us.

We have heard both the parties and perused the records. The facts on this issue are not repeated for this sake of brevity and since there is not dispute about it. It is noted that on this issue the AO has followed the earlier action of his predecessor for AY. 2010-11, and has treated the service fee amounting to Rs.2,00,000/- as “income from house property” and thereby disallowed business expenses claimed against this receipt. The Ld. CIT(A) has followed the order of the Tribunal in AY. 2010-11 to delete the addition. We note that on this issue the Tribunal in assessee’s own case for AY. 2010-11 held as under: - “33. On the question whether the parties have arranged their affairs in such a manner that the taxes payable are avoided and therefore all arrangements have to be ignored and on the question whether income from providing services charges have to be assessed under the head “Income from Business” or should form part of the “income from house property”, we are of the view that the issue as to whether income by way of service charges 'is assessable under the head "Business" was no longer res integra. It is not in dispute that in the first year of the lease the AO had disputed assessee's classification of such income M/s. Gentex Merchants Pvt. Ltd. under the head "Business". On appeal however the first appellate authority held that service charges collected separately from the tenant were assessable under the head "Business" and the decision of the appellate authority was accepted by the Revenue. In the circumstances, the issue was rightly held by the CIT(A) to have attained finality in the case of the Assessee. The CIT(A) was therefore right in concluding that income by way of service charges was chargeable under the' "Profits & Gains from Business".

Since the Ld. CIT(A) has followed the decision of the Tribunal on this issue in assessee’s own case for AY. 2010-11 and there in no change in facts or law, we dismiss this ground of appeal