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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM
PER PRASHANT MAHARISHI, AM:
These are three appeals filed by the assessee for A.Ys. 2001-02, 2005-06 and 2006-07 on the similar facts against the order passed by the learned Commissioner of Income-tax (Appeals) [the learned CIT (A)].
“1. Both the lower authorities erred in not accepting the computation of “Income from House Property” in respect of Flat No.7B in building called “Manek”, as returned by the Appellant.
The learned Commissioner of Income-tax (Appeals) erred in holding that the rateable value determined under Municipal law is not binding on the Assessing Officer. The appellate submits that this finding of the learned Commissioner (Appeals) is contrary to a catena of decisions of the Supreme Court.
Both the lower authorities erred in ignoring the rateable value certificate produced by the appellant.
The learned Commissioner of Income-tax (Appeals) erred in holding that the provisions of the Maharashtra Rent Control Act, 1999, are not applicable to this property.
The Appellant submits that the annual letting value in respect of Flat No.7B in building called “Manek” estimated by both the lower authorities at
Without prejudice to the above, in any event, the adopting of the annual letting value at ₹24,00,000/- is highly excessive and arbitrary, and the same requires to be reduced substantially.
The Assessing Officer erred in not granting credit for tax paid of ₹8,15,756/- which had been recovered by the Tax Recovery Officer on 15th October, 2005.”
Ground no. 8 of the appeal was wrt charging of Interest u/s 220 (2) of The Act , not pressed, hence dismissed.
Ground No 7 is wrt granting of Credit of Rs 815756/- to the assessee, ld. AO is directed to verify it and grant credit for same, if found in accordance with law.
Ground no 1 to 6 are with respect to chargeability of a house property under Income from House Property where in the assessee as owner is given a substantial amount as deposit and Rent received by assessee is meagre.
The fact related to the issue is that
a. assessee is the owner of the flat no.7B situated in Manek Building, Mumbai. This flat
b. The assessee also entered into lease and license agreement with the seller of the flat on monthly rent of ₹5,000/- per month. The lease agreement is for lifetime of Mr. C.G. Saraiya.
c. As per this lease agreement, the assessee received interest free deposits of ₹3 crores.
d. The lease agreement was stated to be indivisible part of the purchase agreement.
e. Municipal taxes and society charges of the flat are to be paid by the assessee.
f. During the year, assessee shown Nil income from this flat as society charges and Municipal taxes paid by the assessee are much more than the rent received by the assessee.
The learned Assessing Officer determined the annual let-out value of this flat for the purposes of computing income from house property. The assessee claimed that annual letting value should be taken at ₹5,000/- per month. In the original assessment order the learned Assessing Officer computed the annual letting value of the property at ₹24 lacs based on notional interest on interest free
Consequent to that, the learned Assessing Officer determine the annual letable value at ₹2,52,000/- per month. During this year, the learned Assessing Officer held that assessee would reasonably fetch ₹2 lacs per month if the property is let out from year to year. Accordingly, the income from house property was estimated at ₹24 lacs and after granting deduction on 1/4th for repairs of ₹6 lacs net income from house property was considered at ₹18 lacs. Consequent to that assessment order under Section 143(3) read with section 250 of the Act was passed on 31st December, 2008.
Assessee challenged the same before the learned CIT (A) who passed the appellant order on 12th December, 2010. The learned CIT (A) upheld the order of the learned Assessing Officer. The reasoning given by the learned CIT (A) shows that the area of the flat is 2400 sq. ft and the flat is situated in one of
At the time of hearing, the assessee submitted that issue has been decided by ITAT in the case of the assessee from A.Y. 1998-99 till A.Y. 2012-13 except some years including these three years in appeal By order dated 17.12.2020. He referred to paragraph no.7.1 of that decision. As per that decision the decision of the co-ordinate Bench in A.Y. 1996-97 and 97-98 was followed. The co-ordinate Bench following the decision of the Hon'ble Bombay High Court in CIT v/s Tip Top Typography, 368 ITR 330 deleted addition. In that year, the income from the house property was determined at ₹36,00,000/-. Therefore, now the issue is squarely covered in favour of the assessee by the decision of the co- ordinate Bench.
The learned Departmental Representative supported the orders of the lower authorities.
We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also carefully perused the order of the co- ordinate Bench in assessee’s own case dated 17-12- 2020. Vide Para 7 onwards issue no.2, the taxability
“Issue No.2: Income from House Property
7.1 The addition under Income from House Property stem from the fact the assessee purchased one residential property situated at 7B, Manek, L.D. Ruparel Marg, Mumbai from one individual namely Dr. Saraiya vide an agreement dated 15/02/1996. However, he leased back the said property on the same very day to the seller Dr. Saraiya vide a leave and license agreement on a monthly license fees of Rs.5,000/-. The said income was offered to tax during the year after deduction of municipal taxes as well as statutory deduction of 20%. However, as per the terms of leave & license agreement, the assessee received interest free deposit of Rs.3 Crores as security deposits from the licensee i.e. Dr. Saraiya which led Ld. AO re-determine rental income in the hands of the assessee against this property.
7.2 As per terms of license agreement, the municipal taxes were to be borne by the assessor licensor. The quarterly outgoing in the shape of municipal taxes and maintenance charges amounted to Rs.19,390/- and therefore, a conclusion was drawn that the monthly license amount of Rs.5,000/- as received by the assessee was nothing but reimbursement of municipal taxes & maintenance charges etc. In other words, the assessee did not show any rent in lieu of the leased property. Accordingly, in terms of Section 23(1)(a) of the Act, the annual value of the property
7.3 In assessee’s case, such other consideration exists and therefore a reasonable rent of the property was to be determined. The same was estimated as 12% of interest free deposit of Rs.3 Crores received by the assessee. Accordingly, an amount of Rs.36 Lacs was to be added to the income of the assessee as rental income. However, the same was to be added on protective basis since it was held that the asset was never acquired by the assessee.
7.4 During appellate proceedings, the assessee has relied upon the favorable first appellate orders for AYs 1996-97 & 1997-98. However, Ld. CIT(A) chose to differ from the same by observing as under: -
6.1 I have carefully considered the facts of the case, order of assessment and the submission of the learned representative of the appellant. The basic issue involved is the computation of income under the head 'Income from House
ii) Location of the property. The property is located in one of the prestigious area of the city i.e. Malabar Hill near the Nepean Sea Road. The building is sea facing.
iii) The cost of the property. As can be seen from the agreement, the cost of the property at the time of purchase by the assessee was of more than Rs.6 crores.
iv) It cannot be ignored that the amount of Rs.3 crores received by the appellant has direct connection with letting out of the property. In normal course, nobody would give such huge amount interest free. While determining the Annual Value this aspect also needs to be considered. The arrangement also proves that the property was let out on the basis of simple terms but a circumventing scheme was made by which the appellant though received nominal rent, however, enabled itself to enjoy substantial funds without paying any interest. The arrangement does not confirm to the normal commercial or prudential norms.
Upon perusal of the above, it is evident that Ld. CIT(A), while agreeing that notional interest could not be adopted as ALV of the property, chose to take a contrary view than taken in earlier years. The reason for the same is stated to be the fact that the property was neither rented out nor leased out but it was an arrangement in the nature of leave & license. Thus, the assessee denies the applicability of Rent Control
Aggrieved as aforesaid, the assessee is in further appeal before us by way of ground nos.1 & 2.
Upon perusal of cited order of the Tribunal, we find that in AY 1996-97, Ld. AO treated the leave and license arrangement entered into by the assessee with Dr. Saraiya as transfer as contemplated in Sec.2(47) of the Act and therefore, denied the exemption u/s 54F as claimed by the assessee. Proceeding further, Ld.AO also formed an opinion that rental value of the property was to be considered as 12% of interest free deposit of Rs.3 Crores received by the assessee from Dr. Saraiya and brought the same to tax.
Upon further appeal, Ld. CIT(A) relying upon the decision of Hon’ble Bombay High Court in Hameed Jaffery V/s CIT (1997) 227 ITR 724 held that no transfer of property was carried out by the assessee to licensee. Dr. Saraiya and the license granted was not for exclusive use but the assessee was vested
The stand of Ld. CIT(A), on both the issues was assailed by revenue in AY1996-97 before cited decision of this Tribunal. The co-ordinate bench, vide para-12 of the order, confirmed the stand of Ld. CIT(A) that the ownership was not dislodged by giving the same on leave & license basis to Dr. Saraiya and the assessee was eligible for deduction u/s 54F. Regarding fixation of ALV of the property, relying upon the decision of Hon’ble Bombay High Court in CIT V/s Tip Top Typography (2014)368 ITR 330, the bench held that the ALV so determined by Ld. AO could not be sustained. The Ld. AO could not brush aside the rent control legislation. Therefore, the order of Ld. CIT(A) was upheld and the ground raised by revenue were ultimately dismissed in para- 13. The said decision was followed mutatis-mutandis in AY1997-98.
Ground Nos. 1 & 2 stands allowed.”
Nothing was pointed out before us by revenue , which suggests any change in the facts and circumstances of the case. Accordingly, judicial discipline demands that the order of the co-ordinate
Accordingly ITA no 3141/M/2010 for AY 2000-01 is partly allowed.
ITA No.3142/Mum/2010 is filed by the assessee for A.Y. 2005-06 against the order of learned CIT (A)-9, Mumbai where in Ground no 1 to 6 relates to income from house property determined by the learned Assessing Officer of ₹24,12,905/- was partly allowed. There is no change in the facts and circumstances of the case, except change in amount of annual lettable value determined by ld. AO . Therefore, respectfully following the order of the co- ordinate Bench in assessee’s own case as stated earlier, we direct the learned Assessing Officer to delete the addition made by the learned Assessing Officer. Accordingly, ground nos.1 to 6 of the appeal of the assessee are allowed.
Ground no 7 is not pressed and hence dismissed.
ITA no 3142/M/2010 for AY 2005-06 is partly allowed.
ITA No.3143/Mum/2010, is also filed against the order of the learned CIT (A)-9, Mumbai dated 24th March, 2010 for A.Y. 2006-07 where the learned
In the result, two appeals for AY 2000-01 and 2005-06 are partly allowed and Appeal for AY 2006- 07 is allowed.
Order pronounced in the open court on 31.10.2022.
Sd/- Sd/- (KAVITHA RAJAGOPAL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 31.10.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent.
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai