FILMKRAFT PRODUCTIONS (I) P.LTD,MUMBAI vs. ACIT 16(1), MUMBAI

For Assessment Year 2013-14 the Assessing Officer determined the similar ALV. however, the assessee was allowed the deduction of Municipal Taxes of Rs.7,58,806/-. On appeal before the Id. CIT(A), the assessment order was set-aside and the Assessing Officer was directed to adopt the Municipal Rateable Value for computing the income from the said flat/House Property.

Bare reading of the aforesaid provision reveals that where any part of the property is lei out and was vacant during the whole or any part of the previous year and due to such vacancy rent received/receivable by the owner is less than the ALV determined under section 23(1 )(a) in that case the actual rent received or receivable is to be treated as the ALV. In our view the word 'let’ and 'vacant' are mutually exclusive. We may appreciate it further, the underlying principle of this provision has to be viewed with regard to the intention together with efforts put by assessee in letting out the property, etc. and then gross annual value is required to be determined. If the assessee intended to let the property and took appropriate efforts in letting the property but ultimately failed to let the same, the actual rent received from it will have to be considered as "nil" being less than the sum referred in section 23(l)(a) of the Act. Similar view was taken by Pune Bench in Vikas Kashav Garud Vs ITO (supra).The Id. AR of the assessee vehemently argued that the assessee made efforts to let out the property, but facts remain the same that assessee could not find suitable tenant. The assessee has placed on record the documentary evidences to show its bonafidies about the letting of flat by filing confirmation of Brokers/Real Estate Consultant (page no. 53 to 55 of PB). In appeals, the question before us is as to whether the ALV determined by Assessing Officer by adopting 7% of cost of acquisition is fair enough or not. 13.The Hon'ble Bombay High Court in case of CIT vs. Tip Top Typography 48 taxmann.com 191 (Bombay) held that in order to determine annual value of property, municipal rateable value may not be binding on Assessing Officer but that is only in cases where he is convinced that interest free security deposit and monthly

We have and after careful reading of the provision in question and the conclusion of the Full Bench of the Delhi High Court concluded that a different view cannot be taken. We respectfully concur with the view taken in this Full Bench decision of the Delhi High Court.

We are of the view that where Rent Control Legislation is applicable and as is now urged the trend in the real estate market so also in the commercial field is that considering the difficulties faced in either retrieving back immovable properties in metro cities and towns, so also the time spent in litigation, it is expedient to execute a leave and license agreements. These are usually for fixed periods and renewable. In such cases as well, the conceded position is that the Annual Letting Value will have to be determined on the same basis as noted above. In the event and as urged before us the security deposit collected and refundable interest free and the monthly compensation shows a total mismatch or does not reflect the prevailing rate or the attempt is to deflate or inflate the rent by such methods, then, as held by the Delhi High Court, the Assessing Officer is not prevented from carrying out the necessary investigation and enquiry. He must have cogent and satisfactory material in his possession and which will indicate that the parties have concealed the real position. He must not make a guess work or act on conjectures and surmises. There must be definite and positive material to indicate that the parties have suppressed the prevailing rate. Then, the enquiries that the Assessing Officer can make, would be for ascertaining the going rate. He can make a comparative study and make a analysis. In that regard, transactions of identical or similar nature can be ascertained by obtaining the requisite details. However, there also the Assessing Officer must safeguard against adopting the rale stated therein straightway. He must find out as to whether the property which has been let out or given on leave and license basis is of a similar nature, namely, commercial or residential. He should also satisfy himself as to whether the rate obtained by him from the deals and transactions and documents in relation thereto can be applied or whether a departure therefrom can be made, for example, because of the area, the measurement, the location, the use to which the property has been put, the access thereto and the special advantages or benefits. It is possible that in a high rise building because of special advantages and benefits an office or a block on the upper floor may fetch higher returns or vice versa. Therefore, there is no magic formula and everything depends upon the facts and circumstances in each case. However, we emphasize that before the Assessing Officer determines the rate by the above exercise or similar permissible process he is bound to disclose the material in his possession to 7 M/s. Filmkraft Productions (I) P. Ltd. the parties. He must not proceed to rely upon the material in his possession and disbelieve the parties. The satisfaction of the Assessing Officer that the bargain reveals an inflated or deflated rate based on fraud, emergency, relationship and other considerations makes it unreasonable must precede the undertaking of the above exercise. After the above ascertainment is done by the Officer he must, then, comply with the principles of fairness and justice and make the disclosure to the Assessee so as to obtain his view.

We are of the opinion that market rate in the locality is an approved method for determining the fair rental value but it is only when the Assessing Officer is convinced that the case before him is suspicious, determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. We are of the view that municipal rateable value may not be binding on the Assessing Officer but that is only in cases of afore-referred nature. It is definitely a safe guide.

We have broadly agreed with the view taken by the Full Bench of the Delhi High Court. Hence, the issue of determination of the "fair rental value" in respect of properties not covered by or covered by the Rent Control Act is to be undertaken in terms of the law laid down in the Full Bench decision of the Delhi High Court.

We quite see the force in the arguments of Ms. Vissanjee that ordinarily the license fee agreed between the willing licensor or a willing licensee uninfluenced by any extraneous circumstances would afford reliable evidence of what the landlord might reasonably be expect to get from a hypothetical tenant. She has in making this submission, answered the issue and summed up the conclusion as well. Then, it is but natural and logical that in the event, the transaction is influenced by any extraneous circumstances or vitiated by fraud, or the like that the Assessing Officer can adopt a "fair rent" based on the opinion obtained from reliable sources. There as well, we do not see as to how we can uphold the submissions of Mr. Chhotaray that the notional rent on the security deposit can be taken into account and consideration for the determination. If the transaction itself does not reflect any of the afore stated aspects: then, merely because a security deposit which is refundable and interest free has been obtained, the Assessing Officer should not presume that this sum or the interest derived therefrom at Bank rate is the income of the assessee till the determination or conclusion of the transaction. The Assessing Officer ought to be aware of several aspects and matters involved in such transactions. It is not necessary that if the license is for three years that it will operative and continuing till the end. There are terms and conditions on which the leave and license agreement is executed by parties. These terms and conditions are willingly accepted. They enable the license to be determined

We have also noted the submissions of Shri Ahuja. We are of the opinion that even in the cases and matters brought by him to our notice, it is evident that the Assessing Officer cannot brush aside the rent control 1 legislation, in the event, it is applicable to the premises in question. Then, the Assessing Officer has to undertake the exercise contemplated by the rent control legislation for fixation of standard rent. The attempt by the Assessing Officer to override the rent control legislation and when it balances the rights between the parties has rightly been interfered with in the given case by the Appellate authority. The Assessing Officer either must undertake the exercise to fix the standard rent himself and in terms of the Maharashtra Rent Control Act, 1999 if the same is applicable or leave the parties to have it determined by the Court or Tribunal under that Act. Until, then, he may not be justified in applying any other formula or method and determine the "fair rent" by abiding with the same. If he desires to undertake the determination himself, he will have to go by the Maharashtra Rent Control Act, 1999. Merely because the rent has not been fixed under that Act docs not mean that any other determination and contrary thereto can be made by the Assessing Officer. Once again having respectfully concurred with the judgment of the Full Bench of the Delhi High Court, we need not say anything more on this issue.

Thus, apart from the three aspects namely of a municipal valuation, of obtaining interest free security deposit and the properties being covered by the Maharashtra Rent Control Act but no standard rent thereunder is fixed, our attention has not been invited to any other case. Suffice it to hold that in those cases and to which our attention is not invited the principles laid down in the decisions of the Hon'ble Supreme Court and referred to by the Full Bench of the Delhi High Court would govern the enquiry.

As a result of the above discussion, we arc of the opinion that wherever the Assessing Officer has not adhered to the above principles, and his finding and conclusion has been interfered with, by the higher Appellate Authorities, the revenue cannot bring the matter to this Court as no substantial question of law can be arising for determination and consideration of this Court. Then, the findings by the last fact finding Authority namely the Tribunal and against the revenue shall have to be upheld as they are consistent with the facts and circumstances brought

Considering the decision of Hon'ble Bombay High Court in case of Tip Top Typography all the appeals are restored back to the file of Assessing Officer to determine the ALV after considering the ratio laid down by Hon'ble High Court. Needless to say that Assessing Officer shall grant fair and proper opportunity before passing the order in accordance with law. In the result, appeal of assessee for Assessment Year 2011-12 & 2012-13 are allowed for statistical purpose.”