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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-6, Mumbai [in short CIT(A)], in appeal No. CIT(A)-6/IT-17/2016-17 dated 24.10.2017. The Assessment was framed by the Income Tax Officer, Mumbai Ward 2(3)(3) Mumbai (in short ‘ITO') for the A.Y. 2013-14 vide order dated 30.03.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO on account of deemed rent of flat No. 51 and 78 situated at Shivneri Society, Dadar, Mumbai and flat at Abhishek Naigaon, Mumbai amounting to ₹ 4.80 lakh each. For this assessee has raised the following four grounds: - “1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-Tax (Appeals)- 6. Mumbai (hereinafter referred to 'C.I.T.(A)") erred both on facts and in law in passing the impugned order dated 24" October 2017 and. therefore, the same is liable to be set aside on this ground alone.
2. On the facts and in the circumstances of the case, the Id. CIT (A) was not justified in confirming the addition of Its. 4,80,000/- made by the Assessing Officer on account of rent of flats nos. 51 and 78 situate at Shivneri Society, Dadar, Mumbai as deemed income from house property on the basis of the report of the Departmental Inspector. The Appellant submits that the said flats situate in MADHA building and as per MADHA Rules owner of the flat cannot lease out the property to the third party.
3. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the action of the Ld. A.O. in respect of the property being Flat at Abhishek - Naigaon. Mumbai as deemed let out and thereby erred in confirming the assessment of the same under the head Income from House Property, ignoring the facts that the Flat at Abhishek - Naigaon, Mumbai is used for the propose of Appellant's Business. Hence, no notional rent could be assessed.
4. Without prejudice to the above grounds. the learned CIT (A) erred in not giving directions to the AO to adopt Municipal Rateable Value for computing the income of the properties, on the ground that the details of ALV were not furnished by the appellant. The AO may be directed to adopt Municipal Rateable Value for reaming properties as per the decision of the Jurisdictional Bombay High Court in the case of M. V. Sonavala v. CIT (177 ITR 246).”
Briefly stated facts are that the AO during the course of assessment proceedings noticed that the assessee is in possession of the following properties: - “1. Abhishek –Naigaon
Dosti Acres-Wadala
3. Shivneri-flat No 51 & 78 at Dadar
4. House at Kolhapur
5. Property at Talegaon (addition during the year)
6. Property at Kalyan (adding during the year).”
Accordingly, the AO taken the deemed rent on two residential flats No. 51 and 78 situated at Shivneri Society, Dadar, Mumbai: at ₹ 4.80 lakh and for flat at Abhishek Naigaon, Mumbai at ₹ 4.80 lakhs. The AO made addition of these two amounts as deemed rent. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the Assessing Officer. Aggrieved, assessee came in second appeal before Tribunal.
Now, before me the learned Counsel for the assessee only requested that ALV of these three flats can be taken by taking Municipal Rateable value. He relied on the case law of Hon’ble Bombay High Court in the case of M. V. Sonavala v. CIT (177 ITR 246) & CIT vs. Tip Top Typography [2014] 368 ITR 330 (Bombay). I find that Hon’ble Bombay High court has held that in the absence of any suspicion or enquiry and the rent determined by the parties is to defraud the Revenue, the AO cannot resolve to adopt deemed rent other than the retable value. Hon’ble Bombay High Court held as under:-
“49. 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 even before the stated period expires. Equally, the licensee can opt out of the deal. A leave and license does not create any interest in the property. Therefore, it is not as if the security deposit being made, it will be necessarily refundable after the third year and not otherwise. Everything depends upon the facts and circumstances in each case and the nature of the deal or transaction. These are not matters which abide by any fixed formula and which can be universally applied. Today, it may be commercially unviable to enter into a lease and, therefore, this mode of inducting a 'third party' in the premises is adopted. This may not be the trend tomorrow, therefore, we do not wish to conclude the matter by evolving any rigid test.
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 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 does 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.”
In view of the above, decision of Hon’ble Bombay High court in the case of Tip Top Typography (supra), I direct the AO to compute the deemed rent based on retable municipal valuation. This issue of assessee’s appeal is allowed in term of the above.
In the result, the appeal of assessee is allowed in term of the above.
Order pronounced in the open court on 15-05-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 15.05.2018 kao kI ga[- .