ACIT - 17(2), MUMBAI vs. MOTI GOVIND BHATIA, MUMBAI

order ,dated 22/02/2016 of the CIT(A)- 28,Mumbai,the Assessing Officer (AO)has filed the present appeal.Assessee,an individual, derives income from house property. He filed his return of income on 18/7/2012,declaring total income of Rs.60,46,020/-. The AO completed assessment u/s. 143(3) of the Act,on 25/03/2014,determining its income at Rs.1, 59,12,458/-. 2.Effective Ground of appeal is about deleting the addition of Rs.78 lakhs.During the assessment proceedings,the AO found that the assessee had claimed that his property (Land and Building)at Goa was used for purpose of business of a Firm,namely Coco Goa,wherein he was a partner.He called for further details in that regard.After considering the same,he held that the property would be considered as used for business purposes only when the assessee himself used it and not when the firm used the property.He relied upon the cases of Pordip Kumar Bothara(244 CTR366)and Prakash Vasantbhai Golvala(ITA/558/Ahd/ 2013, dtd.11.10.2013). He estimated the market rent @ Rs.6,50,000/- per month and assessed the ALV of the property at Rs.78 lakhs against the NIL ALV declared by the assessee . 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA) and made elaborate submissions.After considering the available material,he held that the AO had not conducted any inquiry,that it was not known as to how the AO had arrived at the said figure, that the assessee was the owner of the plot of land and building, that a firm in which he was a partner, was running a hotel on the said plot of land, that the assessee did not charge any rent from the firm.He referred to the order of the Tribunal

2348/M/16 Moti Govind Bhatia in the case of Indira S. Jain(21 taxmann.com 471) wherein the controversy about use of office premises by the firm wherein the assessee is a partner was dealt with at length. Relying upon the said order,he allowed the appeal filed by the assessee and deleted the addition by AO. 4.Before us,the Departmental Representative(DR)relied on the order of AO. As stated earlier, none appeared on behalf of the assessee .

We have perused the material available on record. We find the assessee is owner of plot of land /building located at Goa, that a firm namely Coco Goa was running a hotel on the said premises,that the assessee is a partner in that firm,that he did not charge any rent from the firm,that the AO estimated market rent at Rs.6.5 lakhs per month and made an addition of Rs.78 lakhs to the total income of the assessee for the year under appeal.

We find that the basic controversy is as to whether the office premises occupied and used by a firm in which the assessee was a partner was out of the purview of section 22 of the Act. We would like to reproduce the order of the Tribunal in the case of Indira S. Jain (supra), and it reads as under: “5. We have perused the records and considered the rival contentions carefully. The dispute is regarding computation of annual value of property known as "Varsha" which was owned by the assessee. The only undisputed facts are that the property consisted of 5 floors of which mezzanine floor, first floor and second floor remained vacant throughout the year. The third and fourth floors were occupied by the partnership firm and company for carrying out business. The issue raised is as to whether annual value can be assessed in respect of portion which was vacant throughout the year and whether portion occupied by the company and the partnership firm could be excluded from the purview of computation of income while computing income from house property. The other related issue is method of determination of annual value. The Id. AR has argued that the portion which remained vacant throughout the year has to be excluded from the purview of computation of income of house property under the provisions of section 23{l}(c). However, the claim of the assessee is contrary to judgment of Hon'ble High Court of Andhra Pradesh in the case Vivek Jain( supra) in which it has been held that in case the property is not let out at all during the previous year, no vacancy allowance can be given under section 23(l)(c). In other words, vacancy allowance can be given only when the property is let and vacant for part of the year. No contrary judgment of any other High court or the Hon'ble Apex Court has been brought to our notice. The claim of vacancy allowance in respect of vacant portion is therefore, rejected. 5.1 As regards the portion used for the business purposes, section 22 provides that any portion of the property which the assessee may occupy for the purpose of any business or occupation has to be excluded from the income under the head "house property". The Hon'ble High Court of Allahabad in case of Mustafa Khan (supra) and Hon'ble High Court ofGujarat in the case of Rasiklal Balabhai (supra) have taken the view that the property used by the partnership firm in which the assessee is a partner has to be treated as the user for purpose of business of the assessee. The Hon'ble High Courts had followed the view earlier taken by the Hon'ble High Courts of Bombay in the case ofShantikumar Narottam Morarji v. CIT [1955] 27 ITR 69 in which it was held that when partnership carried on business, each partner thereof carried on that business and a partner thus carried on business although that business happened to be partnership business. Following these judgments, we hold that portion of the property used by the partnership firm in which assessee is a partner has to be excluded from 2348/M/16 Moti Govind Bhatia the total income. As regard the portion used by the company in which the assessee was share ,holder and director, the same in our view cannot be considered for exclusion as company has separate and distinct identity and business being carried on by the company can not be considered as business done by share holder or director. Therefore, the portion occupied by the company for its business has to be considered while computing house property. 5.2 The only other issue left is determination of annual value of the property. Under the provisions of section 22, annual value of a property is deemed to be the sum for which property might reasonably be expected to let from year to year and in case rent actually received is greater the said value, the actual rent received is to be taken as annual value. The AO has taken the annual value on the basis of 8.5% returned on the investment made of the property. The case of the assessee is that Municipal Rateable Value (MRV) should be treated as annual value. The assessee has placed reliance on the Full Bench judgment of the Hon'bie High Court of Delhi in the case of Moni Kumar Subba ( supra). 5.3 We have carefully perused the said judgment of the Hon 'ble High Court of Delhi. In the said case, the Hon'bie High Court held that MRV If determined correctly could be taken as ALV but the same was not binding on the AO. Hon'bie High Court also held that in case AO could show that rateable value under Municipal laws does not represent correct fair rent then, he may determine the same on the basis of material placed on record. In this context, the Hon'bie High Court had also referred to the judgment of Motichand Hirachand v. Bombay Municipal Corpn. AIR 1968 5C 441 in which it was held that fair rent could be arrived at with reference to actual rent paid for the property or any other comparable property and where there were no comparable cases with reference to profits earned from the property or to the cost of construction. The Hon'bie High Court had also referred to the judgment of Hon'bie High Court of Bombay in the case of CIT v. J.K. Investors (Bombay) Ltd. [2000] 248 ITR 723/112 Taxman 107 in which the Hon'bie High Court held that, while deciding fair rent, the various factors could be taken into account. Therefore, in our view, the fair rental value has to be determined on the basis of comparative cases in the locality and other relevant factors. The return on investment may not always be a reliable indicator of fair rent of the property which depends upon market conditions such as demand and supply position in an area, A comparative case in the locality will be the best guide for determination of fair rent. The issue regarding determination of fair ALV, therefore, in our view requires fresh consideration. We, therefore restore this issue to the file of AO. The AO will pass afresh order after necessary examination in the light of observations made above and after allowing opportunity of hearing to the assessee.” Respectfully following the above order, we find that the order of the FAA does not suffer from any legal or factual infirmity. Confirming the same, we decide effective Ground of appeal against the AO. As a result,appeal filed by AO stands dismissed. फलतःिनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 1st March,2018. आदेश क� घोषणा खुले �यायालय म� �दनांक 01 माच�, 2018 को क� गई । Sd/- Sd/- (अमरजीत �सह / Amarjit Singh ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांक/Dated : 01 .03.2018. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ�