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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLESHRI S. RIFAUR RAHMAN, HONBLEShri Ravi K. Sheth v. Shri Percy Paridiwala Shri Bharat Andhle
IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “D” BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth v. DCIT – 5(3) C/o Kalyaniwalla and Mistry LLP Room No. 573 2nd Floor, Esplande House Aayakar Bhavan, M.K. Road 29, Hazarimal Somani Marg Mumbai – 400020 Fort, Mumbai – 400001 PAN: AAIPS7341E (Appellant) (Respondent) Assessee by : Shri Percy Paridiwala Department by : Shri Bharat Andhle
Date of Hearing : 04.06.2011 Date of Pronouncement : 07.06.2021
O R D E R PER C.N. PRASAD (JM)
This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals) – 10, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 12.05.2017 for the A.Y. 2011-12.
Assessee has raised following grounds in his appeal: -
2 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth “1) Both the lower authorities erred in not accepting the computation of "Income from House Property" in respect of Flat No.12B in building called "Manek", as returned by the Appellant. 2) Both the lower authorities erred in ignoring the decisions of the Supreme Court and the jurisdictional High Court which had already interpreted the provisions of section 3) Without prejudice to the Ground No.1 above, the income from house property determined by the Assessing Officer is highly excessive and arbitrary and the same requires to be reduced substantially. 4) Both the lower authorities erred in considering Income from House property in respect of Flat 14B in building called "Manek" at Rs.350,000/- for the month of March, 2011. 5) Both the lower authorities erred in ignoring fact the flat that the flat was lying vacant in the month of March, 2011 and further erred in ignoring the provisions of section 23(1)(c). 6) Without prejudice to the what is stated above, the Appellant submits that in respect of Flat 14B which was lying vacant in the month of March, 2011 the annual value of the property is to be derived on the basis of the municipal valuation according to what is enunciated above in case of Flat 12B. 7) Both the lower authorities erred in levying interest u/s.234B of Rs.2,66,240/-. The Appellant denies his liability to be levied the said interest. The Appellant craves leave to add to, alter or amend, the above Grounds of Appeal as and when advised.”
All the seven grounds of appeal boils down to three issues: - Computing the annual value of the property in 1) respect of Flat No. 12B in the Build called “Manek”,
Computing the annual value of the property in 2) respect of Flat No. 14B in the Build called “Manek”, and
Levying interest u/s. 234B of the Act. 3)
3 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth 4. In so far as Ground No. 7 i.e., levy of interest u/s. 234B of the Act is concerned it is mandatory and is only consequential in computing the tax payable by the assessee, thus this ground of appeal is dismissed.
Coming to the issue of computing the annual value of the house property in respect of Flat No. 12B in building called “Manek”, briefly stated facts are, assessee an individual derives income from salary, house property, capital gains and other sources filed his return of income on 30.07.2011 declaring income of ₹.3,91,86,204/- and the return was processed u/s. 143(1) of the Act. Subsequently the assessment was taken up for scrutiny and assessment was completed u/s. 143(3) of the Act on 21.02.2014 computing the annual ratable value for the property at Flat No. 12B in building “Manek” at ₹.30,24,000/- and the property at Flat No. 14B in building “Manek” at ₹.10,50,000/- as against ₹.6,030/- and ₹.7,00,000/- respectively computed by the assessee in his return of income. Assessee considered immovable property at Nagaon as self- occupied property exercising the option u/s. 23(2) r.w.s. 23(4)(a) of the Act. Further, Flat No. 12B in building “Manek” was also considered by the assessee as self-occupied property but treated as deemed let out property as per section 23(4)(b) of the Act. Thus, the house property at Nagaon and the Flat No. 12B in building “Manek” are used by the assessee for his
4 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth own residence. In case of Flat No. 12B assessee has considered the same as deemed let out and computed income from house property by adopting the annual letting value as fixed by the Mumbai Municipal Corporation. However, the Assessing Officer computed the annual rateable value of the property for Flat No. 12B at ₹.30,24,000/- stating that the fair rent u/s. 23(1)(a) of the Act expected to be fetched per month from letting out the property from year to year is ₹.2,52,000/- when comparing with the rental receipts from similar flats located in the same building. Assessing Officer also relied on the decision of the Mumbai bench of the Tribunal in the case of Tivoli Investment & Trading Co. Pvt. Ltd., [90 ITD 163] in arriving at Annual Rateable Value as per market value.
In the course of assessment, assessee submitted that he has adopted the municipal valuation for Flat No. 12B in building “Manek” at ₹.6,031/- based on the certificate issued by “The Great Eastern Co- operative Housing Society Ltd.,” as the property was not let out but used as self-occupied property. Further, relying on the decision of the Hon'ble Bombay High Court in the case of Smitaben N. Ambani v. CWT [323 ITR 104] the assessee submitted that “the sum for which the property might be reasonably expected to let from year to year” as is found in section 23(1)(a) of the Act is a rateable value as determined by
5 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth the Municipal Authorities. Several other decisions were also relied on by the assessee before the Assessing Officer.
In respect of Flat No. 14B in building “Manek”, assessee contended that this property was purchased by the assessee on 24.12.2010 from Standard Chartered Bank and the said flat was given on leave and license for a period of two months i.e. from 24th December, 2010 to 23rd February, 2011 for monthly rent of ₹.3,50,000/-. Therefore, it is submitted that assessee has offered rental income of ₹.7,00,000/- as income from house property from Flat No. 14B. However, the Assessing Officer computed the annual letting value of the property at ₹.10,50,000/- by including rent of ₹.3,50,000/- even for March 2011 though the flat was vacant during March 2011. On appeal Ld.CIT(A) sustained the order of the Assessing Officer in computing the annual letting value of the property of Flat No.12B as well as Flat No. 14B in building “Manek” at ₹.30,24,000/- and ₹.10,50,000/- respectively.
Learned Senior Counsel Shri Perey Pardiwala appearing for the assessee submitted that originally the provisions of section 23 provided for determination of annual value of house property only on the basis of “the sum for which the property might reasonably be expected to let from
6 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth year to year”. It is submitted that later on Taxation Laws (Amendment) Act, 1975, introduced section 23(1)(b) w.e.f 01.04.1976, whereby it was provided that if the actual rent received by an assessee is in excess of the sum by which the property might reasonably be expected to let from year to year, the annual value will be the rent received. Referring to Board Circular No. 204 dated 24.07.1976 it is stated that the Board has explained the said amendment that sub-section (1) of Section 23 has been amended to provide that where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the annual rent received or receivable be expected to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property. Therefore, it is submitted that from the above said circular it is clear that prior to the introduction of section 23(1)(b) the annual value was equal to the Municipal valuation of the property. It is submitted that Board itself has given how the said term “the sum for which the property might reasonably be expected to let from year to year” is to be interpreted. Therefore, it is submitted that the entire approach of the Assessing Officer is erroneous because the charge u/s. 22 of the Act is
7 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth not on market rent, but is on the annual value and while determining the annual value the municipal valuation is a reasonable guide.
Inviting our attention to the decision of the Hon'ble Calcutta High Court in the case of CIT v. Smt Prabhabati Bansali [141 ITR 419] it is submitted that in this case the Assessing Officer took the annual letting value of self-occupied house property on the basis of market rent. However, it is submitted that the Hon'ble High Court held that the Tribunal was correct in determining the annual letting value on the basis of the standard rent under the Rent Control Act. It is submitted that in a case where the annual municipal value is available that itself would be the annual letting value under the Act. It is submitted that Flat No. 12B is self-occupied and there is no rent received whatsoever for the said flat during the assessment year under consideration. Placing reliance on the following decisions, it is submitted that in the absence of any rent received the annual value needs to be determined on the basis of the municipal valuation only. Pr.CIT v. Harsh Jain in ITA No. 1438 of 2016 dated 05.02.2019. 1) 2) Pr.CIT v. Laxmi Jain in ITA No. 1285 of 2015 dated 16.04.2018. 3) Abhijit Rajan v. ACIT in ITA No.2483/M/2009 dated 27.04.2011. 4) Smitaben Ambani v. CWT (181 Taxman 233) (Bom.)
8 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth 10. In respect of property situated at Flat No. 14B in building “Manek”, Ld. Counsel for the assessee inviting our attention to Clause (2) of the Residential Leave and Licence Agreement Without Security Deposit which is at Page No. 53, entered into by the assessee with Standard Chartered Bank on 24.12.2010, submitted that the property was let out only for two months during the year commencing from 24th December, 2010 and ending on 23rd February, 2011. Therefore, it is submitted that the assessee never let out the property in the month of March 2011 and it was vacant in March. It is further submitted that as per provisions of section 23(1)(c) of the Act where any let out property is lying vacant and owing to such vacancy, the actual rent received in respect of the said property is less than the rent receivable then the actual rent received will be considered to be the gross annual value for the purpose of computation of income from house property. Therefore, it is submitted that the addition of ₹.3,50,000/- made by the Assessing Officer in respect of Flat No. 14B is erroneous and bad in law.
On the other hand, Ld. DR vehemently supported the orders of the authorities below.
9 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth 12. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. It is not in dispute that the property situated at Flat No. 12B in building “Manek” is self-occupied property of the assessee and it was not let out during the year under consideration. As the assessee has chosen to exercise his option to treat his immovable property at Nagaon as self-occupied as per provisions of section 23(2) r.w.s. 23(4)(a) of the Act as the option can only be exercised for one property, Flat No. 12B has been treated as deemed let out property as per provisions of section 23(4)(b) of the Act. The assessee computed the annual rateable value of this property based on the municipal valuation. However, the Assessing Officer computed the rateable value of the property based on the market rent of similar properties in the same building, which the Ld.CIT(A) agreed with the Assessing Officer.
In the case of Pr.CIT v. Harsh Jain (supra) the following question has come up for consideration of the Hon'ble Bombay High Court: - “(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the rateable value of the properties as determined by the Municipal Authorities is the yardstick ignoring that Section 23(109a) mandates annual value to be deemed as the sum for which the property might reasonably be expected to let from year to year?”
10 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth The Hon'ble High Court answering the question in favour of the assessee held as under: - “8. Question (b) relates to the additions made by the Assessing Officer by reversing the rateable value of the property owned by the assessee which was vacant. While complying the taxability of deemed rental income in terms of Sections 22 and 23 of the Act, the Assessing Officer discarded the rateable value fixed by the Municipal Corporation for assessing the tax on such properties and substituted the same with market rate as prevailing in the area, as estimated by him after collecting data with respect to the same. The Tribunal, however, deleted addition on the ground that in case of vacant property, the tax on rental income in terms of Section 23 of the Act can be calculated only on the basis of rateable value assessed by the Municipal Corporation. 9. We find that this view of the Tribunal is supported by decision of this Court by order dated 16th April, 2018 passed in Income Tax Appeal No.1285 of 2015. The Court while dismissing the Revenue's appeal, relied on the decision of this Court in case of Smt. Smitaben N. Ambani v/s. Commissioner of Wealth Tax reported in 323 ITR 104. In such decision, this Court was considering a similar question in context of valuing the self occupied property, for the purpose of wealth tax of the assessee. The provisions for assessing the value of the property were similar to those applicable in case of assessee's annual rateable value in terms of Section 23 of the Act. This question is, therefore, not entertained.”
Similarly, the Hon'ble Bombay High Court in the case of Pr.CIT v. Smt Laxmi Jain (supra) held as under: - “This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 26th November, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 26th November, 2014 is in respect of Assessment Year 2009- 10. 2. Revenue urges the following question of law, for our consideration: “Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in law in holding that rateable value under Section 23(1)(a) of
11 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth the Act of a property has to be determined as determined by the Municipal Authorities under the Corporation Act”? 3. It is an admitted position that the property has not been let out. The impugned order of the Tribunal dismissed the Revenue's appeal by holding that, the issue raised herein, stands concluded by the decision of the jurisdictional High Court in Smt. Smitaben Ambani v/s. Commissioner of Wealth Tax 323 ITR 104. 4. In view of the above, the question as framed does not give rise to any substantial question of law. Thus, not entertained. 5. Accordingly, Appeal dismissed. No order as to costs.”
As could be seen from the above, the ratio of the above decisions squarely applies to the facts of the assessee’s case as the property in question was never let out by the assessee and was treated as self-occupied property and it was held that the Tribunal is right in holding that in case of vacant property the tax on rental income in terms of section 23 of the Act can be calculated only on the basis of ratable value assessed by the Municipal Corporation.
In the case of Smt. Smitaben N. Ambani v. CWT (supra) the Hon'ble Bombay High Court though in the context of rule 1BB of the Wealth Tax Rules under wealth tax Act 1957, held that while applying provisions of Rule 1BB for valuation of self-occupied property, municipal ratable value with addition of statutory deductions, if any, may be adopted instead of
12 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth standard rent for arriving at gross maintainable rent. While holding so the Hon'ble Bombay High Court held as under: - “11. As regards question no.3, the relevant part of rule 1BB (as it then stood) read as under :- "(2) For the purpose of this rule – (i) "gross maintainable rent", in relation to a house, means - (i) the sum for which the house might reasonably be expected to let from year to year or ; (ii) whether the house is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in sub-clause (i), the amount so received or receivable." (emphasis provided) From the above, it is clear that in the case of self occupied property, the valuation of a house for the purpose of Wealth-tax is to be calculated on the basis of gross maintainable rent which is the sum for which the house might reasonably be expected to let from year to year. As far as rateable value is concerned, we note that under the various Acts that govern Municipalities/Municipal Corporations rateable value is also calculated on the basis of reasonable rent that the property may fetch. For example section 114 of the Maharashtra Municipal Councils, Nagar Panchayats and Industrial Townships Act, 1965, rateable value is to be determined under Section 114. The relevant part of which is in the following terms:- "114(1) In order to fix the rateable value of any building or land assessable to a property tax, there shall be deducted from the amount of rent for which such building or land might reasonably be expected to let or for which it is actually from year to year, whichever is greater, a sum equal to ten per centum of the said annual rent, and the said deduction shall be in lieu of all allowances for repairs or on any other account whatever." (emphasis provided)
13 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth 12. Under the Bombay Municipal Corporation Act, 1888 rateable value is calculated under Section 154(1) and the relevant portion of the section is in the following terms :- "154. Rateable value how to be determined :- (1) In order to fix the rateable value of any building or land assessable to a property-tax, there shall be deducted from the amount of the annual rent for which such land or building might reasonable be expected to let from year to year a sum equal to ten per centum of the said annual rent and the said deduction shall be in lieu of all allowances for repairs or on any other account whatever." 13. Advocate for the assessee relied upon the judgment of the Calcutta High Court in the case of Commissioner of Income-tax Vs. Prabhabati Bansali. In that case the Tribunal had directed the ITO to determine the annual value of the property afresh with reference to its rateable value as determined by the municipal corporation. In a reference, the Calcutta High Court held that the Tribunal had justified in giving these directions. 14. Advocate for the assessee then relied upon a judgment of this Court in the case of M.V.Sonavala Vs. CIT reported in 177 ITR 246, where this Court following the view taken by the Calcutta High Court in the case of CIT Vs. Prabhabati (supra), held that the annual value of different properties should be calculated on the basis of which the property might reasonably be let from year to year or the annual municipal value. The aforesaid decision was given for calculating the annual value within the meaning of section 23(1) (a) of the Income- tax Act and the reference was one under the Income-tax Act. The question in the case was also framed not in relation to standard rent but in relation to actual compensation received but the ultimate finding of this Court was it could be calculated on the basis of annual municipal value. To that extent, this judgment of our Court is relevant to the issue raised before us. 15. That it may be that in areas which are governed by rent control legislation the reasonable letting value cannot exceed the standard rent but if we consider the statutory definition of the term "standard rent" in rent control legislations and the mode and manner of calculating "Municipal ratable value, situations can be
14 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth countenanced where the standard rent of a given premises might be more or different than the sum for which a house might reasonably be expected to be let from year to year as calculated by the Local Municipal Authority for the purpose of arriving at the Municipal ratable value. This possibility was noticed by this Court in the case of Nirlon Syn. Fibres & Che. Vs. Municipal Corporation reported in 2002 vol.104 (1) Bom.L.R. 762 wherein in paragraph-20 this Court observed as under:- "It is therefore to be held that the authorities, while determining the rateable value under section 154 of the said Act, have to bear in mind the provisions of the Rent Act and while deciding the rateable value have to take into consideration the provisions of the said Act as well as the Rent Act and considering the facts and materials placed before them have to arrive at the figure pertaining to the rateable value of the premises. While doing so, in cases where the Court under the Rent Act has already fixed the standard rent for any such premises, undoubtedly the same will have to be considered for determining the rateable value of the building. However, in case no such standard rent has been fixed under the Rent Act, the reasonable amount of rent, which can be expected by the owner from a hypothetical tenant, has to be arrived at by taking into consideration the provisions of section 11 read with section 5(10) of the Rent Act as also sections 154 and 155 of the said Act. Section 155 of the said Act empowers the Commissioner to call for information and returns from the owner or enter an exigible premises. It should be also borne in mind by the authorities that whatever figure which can be arrived at shall be a reasonable amount of rent which can be expected by the owner from a hypothetical tenant ; i.e. the amount so arrived at should not be more than the standard rent which can be calculated in terms of the provisions contained in section 11 read with section 5(10) of the Rent Act." (emphasis supplied) 16. In our view, the basis on which a self occupied property is valued under rule 1BB of the Wealth Tax Act and Municipal rateable
15 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth value is arrived at under Municipal law is the same i.e. "a reasonable amount of rent that can be expected by the owner from a hypothetical tenent". That while arriving at such reasonable amount of rent that can be expected by the owner from a hypothetical tenant, the amount of statutory deduction, if any, permissible under the local municipal law must be added to the rateable value. We thus answer question no.3 as follows. "That while applying provisions of Rule 1BB for valuing the self occupied property, Municipal rateable value with addition of statutory deductions if any, may be adopted instead of standard rent, for arriving at the gross maintainable rent." 17. In view of the questions as answered, the Wealth-tax Reference is disposed off with no order as to costs.
Thus, respectfully following the above said decisions, we uphold the computation of house property as arrived at by the assessee in respect of self-occupied Flat No. 12B in the building “Manek”. Accordingly, grounds raised by the assessee on this issue are allowed.
Coming to the Annual Rateable Value in respect of Flat No. 14B, we find from the residential leave and licence agreement entered into by the assessee with Standard Chartered Bank that the property was let out only for two months commencing from 24th December, 2010 till 23rd February, 2011. The property was vacant in the month of March 2011. In the circumstances, there is no justification for adding the rent for the month of March 2011 while arriving at Annual Letting Value of the property and
16 ITA NO. 4939/MUM/2017 (A.Y. 2011-12) Shri Ravi K. Sheth this is against the provisions of section 23(1)(c) of the Act. Thus, we direct the Assessing Officer to accept the Annual Letting Value as computed by the assessee in respect of Flat No. 14B in building “Manek” and recompute the income of the assessee. Grounds raised by the assessee on this issue are allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 07.06.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.
Sd/- Sd/- (S. RIFAUR RAHMAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 07/06/2021 Giridhar, Sr.PS
Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum