ITO 14(1)(1), MUMBAI vs. ALTITUS MANAGEMENT ADVISORS P.LTD, MUMBAI

आदेश / O R D E R

PER RAVISH SOOD, JUDICIAL MEMBER:

P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. The revenue assailing the order of the CIT(A) had raised the following grounds of appeal:-

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the sinking fund is not income of the a s s e s s e e wi th o u t a p p r e c i a ti n g th e f a c t t h a t th e a s s e s s e e by incorporating a clause in the rental agreement collecting the additional r e n t i n th e g a r b of m a i n te n a n c e o f b u i l d i n g wh i c h i s n o t th e responsibility of the tenant. 1.1. On the f acts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the decision of the Hon'ble ITAT in the case of Mukesh D. Ambani vs. ACIT , SpI. Cir-18(1), Mumbai (7 SOT 521) (Mum) as this decision was on account of determination of ALV while in this case assessee is claiming deduction u/s.24(a) on account of repairs and reducing contribution to sinking fund from its income. 1.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the contribution to sinking fund is not income of the assessee without appreciating the fact that the tenants has deducted tax at source on the payment u/s. 194I treating the payment as rent.

4. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal

at any time before or at the time of hearing of appeal.

5. The appellant prays that the order of the CIT(A) on the above ground be set-asideous be set aside and that of the assessing officer be restored.”

2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of buying of properties and leasing the same had e-filed its return of income for A.Y 2011-12 on 29.09.2011, declaring total income of Rs.13,99,982/-. The case of the assessee was taken up for scrutiny assessment and a notice under P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. Sec. 143(2), dated 10.09.2012 was issued and duly served on the assessee. The A.O during the course of the assessment proceedings observed that the assessee had received contribution of Rs.33,86,952/- sinking fund from its tenants. The A.O holding a conviction that the part recovery of sinking fund by the assessee from the tenants was liable to be brought to tax as the income of the assessee under head income from house property, therefore, called upon the assessee to put forth an explanation as regards the same. The assessee in support of its contention that the part recovery of the sinking fund from the tenants was not to be assessed as its income from house property submitted before the A.O, as under:-

“4.2 Vide letter dated 28.02.2014 the assessee submitted as under: “A Sinking Fund is fund established by an entity to fund future capital expenditure or repayment of a debt. This does not form part of any income earned by the entity. AS per the agreement between Altitus Management Advisors Pvt. Ltd (“Altitus”) and Information Technology Park Limited (“ITPL”), Altitus, being part owner of the building, will have to contribute in the form of Sinking Fund for replacement of the assets. Accordingly, the tenants of Altitus, as part of their rental agreements with Alti tus, are responsible for such contribution of Sinking Fund directly to the ITPL. Alternatively, as per the rental agreement, Altitus is authorized to collect such Sinking Fund contribution from its tenants on behalf of ITPL and transfer the same to ITPL. During the year, company has collected a part of sinking fund from 5 tenants as per the agreement entered into with them. Any shortfall in the liability to contribute to ITPL for Sinking Fund is borne by Altitus. The inten tion of the company is to collect sinking f und f rom its tenants on behalf of ITPL as per the rental agreement with its tenants, for the space teased out to them. Wherever the company is not able to recover from its ten ants or in respect of the space not leased out, the unrecovered amount is borne by the company and charged to its Profit & Loss. Account as an expense. The rebate of 30% of revenue given under the head “Income from House Property” is solely meant for regular repairs and maintenance to keep the assets functioning. Such expenses are always revenue in nature. However, Sinking Fund is created to meet capital expenditure for replacing an asset and not to meet any routine running and maintenance expenses.

P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. Therefore, any collection of Sinking Fund on behalf of ITPL does not form part of income of Altitus. Further, the provision of section 23(1) of the Income Tax Act, 1961 defines the annual value of a rented property as higher of reasonable expected rent of the property and rent actually received or receivable after excluding unrealized rent and then deducting loss due to vacancy. The rental charged to the tenant is as per commercial negotiation. The terms of the agreements are clear that the tenants are under an obligation to bear the sinking fund in addition to the rentals paid by them. In various cases it has been held by the judicial Authorities that until there is enough evidence that the rental received is low compared to the prevailing market rent for similar premises in the same locality, nothing can be added to the annual value of the property. Few cases are cited below: In the case of Mukesh D. Ambani Vs. Assistant Commissioner of Income-tax Circle 18(1), Bombay Tribunal has held that where the tenant has agreed to pay the maintenance charges or accepted to bear the cost of repairs, the same should not be ground for holding that the stipulated rent does not represent the annual letting value specially when there was no evidence or finding to show that the rent received was low compared with the prevailing rent for similar premises in the same locality. We further submit that in the decision of CIT Vs. Sathya Co., it was held that no notional interest could be added to calculate the rental income and it was also held that the presumption of Assessing Officer that the notional interest is integral part of rent was ultra vires the provisions of section 23 of I.T Act. In another case of CIT Vs. Prabutt Chaurn Law, it was held that the bona fide annual value had to be determined in accordance with section 9(1)(i) and not under section 9(1)(i). It was also held that there was no justification for adding a particular sum to the stipulated rent merely because the tenant had undertaken to bear the cost of repairs. We further refer to the decision in CIT Vs. Smt. Nayeema Momen, where it was held that where the tenant had agreed to pay the maintenance charges or accepted to bear the cost of repairs the same should not be a ground for holding that the stipulated rent does not represent the annual letting value, specially when there was no evidence or finding to show that the rent received was low compared to the prevailing rent for similar premises in the same locality. However, the A.O not being persuaded to accept the contentions of the assessee, concluded that as the tenants had actually made sinking fund payment on behalf of the assessee company to ITPL, therefore, the same was to be treated as the rental income of the assessee and liable to be assessed as the income of the assessee from house property under Sec.24 of the Act. The A.O in the backdrop of his aforesaid conviction added the contribution of Rs.33,86,952/- made P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. by the tenants towards sinking fund to the rental income of the assessee.

3. The assessee assailed the aforesaid treatment of the contribution by the tenants to the sinking fund as its rental income by the A.O before the CIT(A). The assessee submitted before the CIT(A) that as the sinking fund was a fund collected to undertake carrying out of repairs of the building and was usually spent for the upkeep of the property, therefore, the same could not be considered as part of the rental income. The assessee in support of its aforesaid contention relied on the order of the coordinate bench of the Tribunal, viz. ITAT, Mumbai Bench, “J”, Mumbai in the case of Mukesh D. Ambani Vs. ACIT, Special Circle 18(1), Mumbai, (7 SOT 521) (Mum). The CIT(A) after deliberating on the contentions of the assessee was persuaded to be in agreement with same. The CIT(A) being of the view that as the issue as to whether the amount collected for sinking fund for maintenance or other works cannot form a part of the annual value of the property and hence be brought to tax as the income of the assessee under the head of „income for house property‟ was deliberated upon and adjudicated in favour of the assessee by the jurisdictional Tribunal in the case of Mukesh D. Ambani Vs. ACIT (2006) 7 SOT 521 (Mum), therefore, following the same decided the issue in favour of the assessee and deleted the addition of Rs.33,86,952/- made by the A.O on the said count.

4. The A.O during the course of the assessment proceedings further observed that the assessee had claimed interest expenditure under Sec. 24(b) of Rs.6,08,41,889/- while computing its income from house property. The A.O observed that during the year under consideration the assessee had shifted its loan with UCO Bank to Standard Chartered Bank and had claimed interest expenditure in respect of the P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. same. The A.O observed that his predecessor while framing the assessment in the hands of the assessee for the immediately preceding year, viz. A.Y 2010-11 had disallowed the interest element pertaining to the loan which was taken by the assessee from its holding company, viz. M/s TCG Urban Infrastructure Holdings Ltd for the reason that the said loan was not advanced for the acquisition or construction of the property, but rather, for the purpose of meeting the need of finance for day to day operations and the working capital requirements. The A.O observed that though the appeal filed by the assessee on the said issue was allowed by the CIT(A), but however, the department had not accepted the order of the CIT(A) and had carried the matter in further appeal before the Tribunal. Thus, the A.O being of the view that as the issue pertaining to allowability of the interest expenditure under Sec. 24(b) was pending adjudication before the Tribunal in the assessee‟s own case for A.Y 2010-11, therefore, for the said reason the claim of interest expenditure of Rs. 33,10,656/- raised by the assessee under Sec. 24(b) of the Act was liable to be disallowed.

P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd.

(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. In Sec. 24(b) it is clearly stated that where the property has been acquired, constructed, repaired, renewed or reconstructed with the borrowed capital, any interest payable on such capital is allowable as deduction. Here in the appellant's., case also as its only activity is purchasing the property and leasing them on rent, the sec.24(b) allows for the deduction if property is acquired from borrowed capital. There is no evidence in the A.O's order that this property was not acquired from the capital borrowed from TCG Urban Infrastructure. Neither any cogent material was brought on the record by the A.O. to show that appellant is carrying any other activity and utilizing these funds for the working capital purposes. Hence appellant's main business is for the purchase of property through borrowal and income from rent. As sec. 24(b) provides that any property acquired with borrowed capital is eligible for deduction. In this case also appellant had acquired this property from the borrowed capital. ;:in sec.24b) it is not required that purpose mentioned in the agreement denies any benefit which 'is available to the appellant if a property is acquired from borrowed capital, deduction of interest is allowable, hence, appellant's deduction of Rs. 1,48,34,926/- for interest paid for the borrowings from TCG Urban Infrastructure is to be rightly allowed and deduction is to be allowed to the appellant. A.O's addition is deleted. Relief granted to the appellant Rs.1,48,34,926/-. This ground of appeal is allowed. 3.4 Following the above decision of the CIT(A), the A.O’s addition is deleted and ground of appeal is allowed.” The CIT(A) followed the view taken by his predecessor on the issue under consideration and deleted the addition of Rs.33,10,656/- made by the A.O on the said count in the hands of the assessee.

6. The A.O further while framing the assessment observed that the assessee had accepted interest free refundable deposits aggregating to Rs.9,53,43,395/- from the parties from whom it was in receipt of rent of Rs.10,01,68,146/-. The A.O being of the view that as the assessee had received the aforesaid deposits in respect of the leased premises, therefore, the reasonable expected interest on the said deposits would form part of the reasonable expected rent for the property under consideration. The A.O on the basis of his aforesaid conviction worked out the notional interest @ 6% per annum on the aforesaid deposits of Rs.9,53,43,395/-and made an addition of the consequential interest P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. element of Rs.57,20,603/- to the income of the assessee from house property.

7. The CIT(A) during the course of the appellate proceedings observed that the A.O had made an addition of the notional interest of Rs.57,20,603/- by relying on the decision of ITAT, Delhi in the case of Fizz Drinks (2005) 95 ITR 429 (Del). The CIT(A) observed that a similar issue had came up in the assessee‟s own case for A.Y 2010-11 before his predecessor, wherein the latter relying on the following judicial pronouncements:- (i) Gagan Trading Company Ltd. Vs. ACIT-5(2), Mumbai (2012) 28 taxman.com 78 (Mum). (ii) ACIT, 19(3) Vs. Monisha R. Jaysingh (2012) 21 taxman.com 9 (Mum). (iii) DCIT-10(1), Mumbai Vs. Reclamation Realty India (P) Ltd. (2011) 9 taxman 35 (Mum). (iv) J.K. Investor Ltd. Vs. DCIT (2000) 74 ITD 274 (Mum).

, had concluded that if the income was offered by the assessee under Sec. 23(1)(b) then the notional interest on the interest free deposits received from the lessees cannot be added to the income of the assessee. The CIT(A) observed that the order passed by the Tribunal in the case of J.K. Investor Ltd. (supra) was confirmed by the Hon’ble High Court of Bombay in the case of J.K. Investors Ltd. (2001) 248 ITR 723 (Bom) and the appeal of the revenue was dismissed. The CIT(A) further observed that the order of the ITAT, Delhi in the case of Fizz Drinks (supra) was distinguishable on facts and thus would have no bearing on the adjudication of the issue involved in the case before him. The CIT(A) distinguishing the facts involved in the aforementioned case, observed that in the said case the property was let out by the assessee at a rent of Re. 1 per month and interest free security deposits of Rs.1,63,36,000/- was taken. It was thus in the P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. backdrop of the aforesaid facts that the Tribunal had concluded that as the rent received by the assessee was not only very low, but rather, was even lower than the annual lettable value, therefore, the interest on the aforesaid deposit had to be considered as the rent. The CIT(A) pitting the facts involved in the case before him as against those involved in the case of Fizz Drinks (supra) relied upon by the A.O, observed that as in the case of the present assessee the rent was higher than the annual lettable value, therefore, the view arrived at by the Tribunal in the said case would not have any bearing on the adjudication of the issue involved in the case before him. The CIT(A) on the basis of his aforesaid deliberations deleted the addition of Rs.57,20,603/- made by the A.O.

as Rs.33,86,952/-) in respect of interest on borrowed capital claimed as deduction under Sec. 24(b) of the Act by the assessee, submitted that the CIT(A) observing that a similar disallowance of interest expenditure involving the same facts was deleted by his predecessor in the assessees own case for A.Y 2010-11, therefore, finding no reason to take a different view had rightly deleted the aforesaid addition so made by the A.O in the hands of the assessee.

10. The ld. A.R adverted to the addition of Rs.57,20,603/- made by the A.O towards notional interest in respect of the interest free refundable deposits received by the assessee from its tenants, which on appeal was deleted by the CIT(A). It was submitted by the ld. A.R that the CIT(A) after deliberating on the facts of the case had observed that the similar issue involving the same facts was decided by his predecessor in the assessees own case for the immediately preceding year, viz. A.Y 2010-11. The CIT(A) observed that his predecessor by placing reliance on the various orders of the coordinate benches of the P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. Tribunal had deleted the addition made by the A.O. The Ld. A.R submitted that the CIT(A) finding himself to be in agreement with the view taken by his predecessor while disposing of the assessees appeal for AY: 2010-11, had rightly followed the same. It was submitted by the ld. A.R that as no infirmity did emerge from the order of the CIT(A), therefore, the appeal filed by the assessee being devoid of any force was thus liable to be dismissed.

“2. In brief the facts as enumerated by the Assessing Officer are that the appellants are owners of their respective flats in a building known as Usha Kiran, let out on leave and licence basis to M/s Aveshesh Mercantile Ltd. by Smt. Kokila D. Ambani and other appellant namely Shri Mukesh D. Ambani has let out his flat to M/s. Averan Textiles Ltd. on a monthly rent of Rs. 5,000 per month. So the rent was declared at Rs. 60,000 per month. The dispute is in respect of the following payments made by the said tenants to the said co-operative housing Society, reproduced by Assessing Officer as follows:

Sr. Nature of payment Amount (Rs.) No.

Name of Property Annual Value (i) Usha Khan Rs.2,89,996/- Less: Deduction: Under Sec. 24(1)(i) of the IT Act: Rs.57,999/- For repairs = 1/5th of ALV Income from house property as Rs.2,31,997/- determined: Less: Income from house property as Rs.48,000/- returned: Difference by which returned income Rs.1,83,997/- needs to be increased:

(Figures as per file of Shri Mukesh D. Ambani) 3. Being aggrieved the issue was carried before the first appellate authority and after reiterating the facts as referred hereinabove ld. CIT(A) has concluded that the reimbursement incurred by the licensee on behalf of the licensor were nothing but indirect rent paid by the licensee to the licensor. According to him as well for the purpose of calculating any rent received or receivable as per the provisions of section 23(1)(b) have to be considered hence, upheld the view of the Assessing Officer that the sum paid by M/s. Aveshesh Mercantile Ltd., the tenant, to the housing society on behalf of the appellant was in fact rent receivable in the hands of the appellant under section 23(1)(b) of IT Act. He has also rejected the alternate clam in respect of the said income to be taxed under the head “Other sources” under section 56 of I.T Act on the ground that the rental income was earned by virtue of being the owner of the house property hence to be taxed under the head Income from house property.

in both the appeals are hereby allowed. In the result, both the appeals are allowed.”

12. We have deliberated on the observations arrived at by the CIT(A) as well as the view taken by the coordinate bench of the Tribunal in the case of Mukesh D. Ambani (supra). We find ourselves persuaded to be in agreement with the view taken by the coordinate bench that contributions of the tenants of the property towards sinking fund cannot be assessed as rental income of the assessee. We thus finding no reason to take a different view, therefore, uphold the deletion of the addition of Rs.33,86,952/- on the said count by the CIT(A). The Ground of appeal No. 1 raised by the revenue before us is dismissed.

13. We now advert to the disallowance by the A.O of the claim of the assessee in respect of interest expenditure under Sec. 24(b) of Rs.33,10,656/-, which was deleted by the CIT(A). We find that the CIT(A) observed that the issue pertaining to disallowance of interest on borrowed capital had came up before his predecessor in the assessees own case for A.Y 2010-11, wherein the said disallowance was vacated by the CIT(A) for the reason that the revenue had failed to establish that the borrowed funds were utilized by the assessee for purposes other than for acquiring the property under consideration. The CIT(A)

P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. observed that as the funds borrowed by the assessee were utilized for acquiring of property, therefore, following the order passed by his predecessor involving identical facts, deleted the disallowance of Rs.33,10,656/- which was made by the A.O on the said count in the hands of the assessee. We find that though the A.O while framing the assessment was not oblivious of the fact that the identical issue was decided by the CIT(A) in the assessees own case for the immediately preceding year, viz. A.Y 2010-11, but however, had disallowed the claim of deduction of interest expenditure of Rs.33,10,656/- raised by the assessee under Sec. 24(b), only for the reason that the revenue had not accepted the order of the CIT(A) on the issue under consideration in the preceding year, viz. A.Y 2010-11 and had assailed the same before the Tribunal. We have deliberated on the facts and are unable to comprehend that now when the similar issue involving identical facts had been adjudicated by the CIT(A) in favour of the assessee, therefore, how a contrary view could have been taken by the A.O, despite remaining well convesant of the aforesaid state of affairs. We are unable to persuade ourselves to accept the view taken by the A.O for disallowing the claim of the assessee under Sec. 24(b), therein leading to a consequential addition of Rs.33,10,656/- in its hands. We had deliberated on the observations of the CIT(A) and are persuaded to be in agreement with the view taken by him. We thus finding no infirmity in the deletion of the aforesaid disallowance of Rs.33,10,656/- by the CIT(A) therefore, uphold his order. The Ground of appeal

No. 2 raised by the revenue is dismissed.

14. We now take up the addition made by the A.O in respect of notional interest in respect of interest free refundable deposits received by the assessee from its tenants. We find that the assessee who during the year under consideration was in receipt of rental P a g e | ITO-14(1) Vs. M/s Altitus Management Advisors P. Ltd. income of Rs.10,01,68,146/-, had received interest free refundable deposits totalling to Rs.9,53,43,395/- from the said tenants. The A.O being of the view that as the aforesaid deposits were received by the assessee in respect of the leased premises, therefore, reasonable expected interest on the said deposits would form part of the reasonable expected rent for the property under consideration. We find that the A.O on the basis of his aforesaid conviction had worked out the notional interest on such interest free refundable deposits at Rs.57,20,603/- and added the same to the income of the assessee from house property. We find that on appeal the CIT(A) observed that a similar addition of notional interest in respect of interest free deposits had came up before his predecessor in the assessees own case for the immediately preceding year, viz. A.Y 2010-11. The CIT(A) observed that his predecessor while disposing of the appeal of the assessee for A.Y 2010-11, after placing reliance on the various orders of the coordinate benches of the Tribunal and the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. J.K. Investors (Bom) Ltd. (2001) 248 ITR 723 (Bom), had observed that as the actual rent received or receivable by the assessee in respect of the aforesaid property was found to be in excess of the sum for which the property might reasonably be expected to have been let out from year to year, and the ALV had been determined under Sec. 23(1)(b), therefore, no addition in respect of the notional interest was called for in the hands of the assessee. We have deliberated on the observations recorded by the CIT(A) and are persuaded to be in agreement with the view taken by him. We find that as the CIT(A) had followed the view taken by his predecessor in the assessee‟s own case for the immediately preceding year, viz. A.Y 2010-11, therefore, no infirmity emerges from his order. We may herein observe that nothing has been placed on record or averred before us which could persuade us to