ACIT NON CORPORATE CIRCLE 11 , CHENNAI vs. KAMINI SUNDARAM , CHENNAI

आदेश / O R D E R

These are appeals filed by the Revenue and assessee respectively directed against an order dated 24.03.2017 of ld. Commissioner of Income Tax (Appeals)-13, Chennai.

ITA Nos.1637 & 2377/2017 :- 2 -:

Appeal of the assessee is filed with a delay of thirty three 2. days, and appeal of the Revenue is delayed by six days. Condonation petitions have been filed by the respective parties. Both the parties did not raise any serious objection to the respective pleas.

Accordingly, delays in both cases are condoned and appeals are admitted.

Both the appeals relate to an issue regarding assessment of 3. annual rent of a property belonging to the assessee located at North Beach Road, Chennai. Assessee had originally filed her return of income for the impugned assessment year disclosing income of Rs.31,74,020/-. In the statement of income filed alongwith return, assessee had shown rentals from two properties one at Cathedral Road and another at North Beach Road, both in Chennai. Annual rent from the Cathedral Road building was shown as Rs.33,15,006/- against which Municipal tax of Rs.1,51,522/- was deducted. Annual rent for the property at North Beach Road, Rajaji Salai was shown as Rs.1,05,894/- against which Municipal Tax of Rs.1,09,590/- was deducted. Thus, the rental income from the latter building reflected a loss of Rs.3,696/-. Ld. Assessing Officer was of the opinion that for the Cathedral Road building Municipal Tax paid came to 4.57% of the annual rent. In other words, as per the ld. Assessing Officer rental shown by the assessee for the Cathedral Road building was 21.88

ITA Nos.1637 & 2377/2017 :- 3 -: times of the Municipal Tax. By applying this ratio, ld. Assessing Officer came to a conclusion that for the Rajaji Salai building, rentals ought have been Rs.23,97,830/- viz 21.88 times of Municipal tax Rs.1,09,590/-. As per ld. Assessing Officer, assessee had against the receivable annual rent of Rs.23,97,830/-, declared only Rs.1,05,894/-.

After allowing deduction u/s.24 of the Income Tax Act, 1961 (in short ‘’the Act”), an addition of Rs.16,01,768/- was made.

Aggrieved, assessee moved in appeal before ld. 4.

Commissioner of Income Tax (Appeals). Contention of the assessee was that she had only 1/3rd share in the building at North Beach Road. According to the assessee, Municipal Tax, water tax and the total taxes in respect of this building were as under:-

Particulars Municipal Municipal Water tax Total taxes Valuation tax P.A P.A paid P.A. Portion 1 212176 38682 14852 53534 Portion 2 476440 78036 33350 111386 Portion 3 231067 41120 15120 56240 Total 919683 157838 63322 221160 1/3rd share 306561 52613 21107 73720 of the above Contention of the assessee was that income from house property had to be worked out in accordance with Sections 23 & 24 of the Income Tax Act, 1961 (in short ‘’the Act’’). As per the assessee the data relevant for such computation was as under:-

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Particulars Municipal Rent Higher Actual Vacancy Gross Valuation receivable of the rent allowance annual P.A. above value Portion 1 212176 210000 212176 192489 17511 194665 Portion 2 476440 280920 476440 23409 257511 218929 Portion 3 231067 152676 231067 101784 50892 180175 Total 919683 643596 919683 317682 325914 593769 1/3rd share 306561 214532 306561 105894 108638 197923 of the above Contention of the assessee was that tax of Rs.1,09,589/- claimed by her comprised of Municipal tax Rs.52,613/-, Metro Water tax Rs.21,107/- and arrears of Municipal tax Rs.35,869/-. As per the assessee percentage of Municipal tax on annual value in a particular locality could not be applied universally for finding the annual value of a property situated in a entirely different locality.

Ld. Commissioner of Income Tax (Appeals) after considering 5. the submissions of the assessee was of the opinion that ld. Assessing Officer was justified in applying the ratio of annual rental to Municipal tax returned by the assessee for its property in Cathedral Road, for finding the annual value of the property at North Beach Road.

However, according to him, for applying multiplication factor of 21.88, what ought have been considered was Municipal tax component alone. Such Municipal tax component was Rs.52,613/- only as per the ld. Commissioner of Income Tax (Appeals). Thus, according to him,

ITA Nos.1637 & 2377/2017 :- 5 -: rentals from North Beach Road property could be considered only as Rs.11,51,172/- after deducting standard deduction u/s.24 of the Act.

He directed the ld Assessing Officer to consider the annual rent of the North Beach Road property at Rs.11,51,172/- against Rs.23,97,830/- considered in the assessment.

Now before me, assessee is aggrieved on the methodology 6. adopted for fixing the annual value of her property at North Beach Road. According to her annual value shown in the return of income was correct. As against this, Revenue is aggrieved that ld. Commissioner of Income Tax (Appeals) directed application on multiplication factor 21.88 times on Municipal tax component of Rs.52,613/- alone ignoring the Metro Water tax Rs.21,107/- and arrears of �35,869/-.

Ld. Counsel for the assessee submitted that the methodology 7. adopted by the lower authorities for fixing the annual value of the North Beach Road was unknown to the law. According to him, just because one property fetched higher rent, it would not mean that another property which was at an entirely different locality would earn similar income. According to him, assessee had correctly returned the rental income based on the actual rent received from the property.

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Per Contra, and in support of its own appeal, ld. 8.

Departmental Representative submitted that ld. Assessing Officer had correctly applied ratio of 21.88 times on the Municipal tax claimed by the assessee for ascertaining the annual rentals of the North Beach Road property. As per the ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) fell in error in directing exclusion of Metro Water tax and arrears of Municipal tax while applying such ratio.

I have considered the rival contentions and perused the 9. orders of the authorities below. It is true that assessee had returned rental income from its property at Cathedral Road at Rs.33,15,006/- against which Municipal Tax claimed was Rs.1,51,522/-. It is also true that Municipal Tax as a percentage of the rental income came to 4.57% and this gave a multiplication factor 21.88. But the question before me is whether the same multiplication factor can be adopted wherever a property is located. Ld. Assessing Officer had adopted the multiplication factor of 21.88 on the Municipal Tax, for the property situated in North Beach Road. At this juncture, it is apposite to reproduce Section 23 of the Act.

‘’1) For the purposes of section 22, the annual value of any property shall be deemed to be.

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(a) the sum for which the property might reasonably be expected to let from year to year ; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable ; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise. (2) Where the property consists of a house or part of a house which? (a) is in the occupation of the owner for the purposes of his own residence ; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. (3) The provisions of sub-section (2) shall not apply if?

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(a) the house or part of the house is actually let during the whole or any part of the previous year ; or (b) any other benefit therefrom is derived by the owner. (4) Where the property referred to in sub-section (2) consists of more than one house? (a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf ; (b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses bad been let’’.

The method in which annual value is to be determined is clearly set out on the above section. No doubt, Multiplication valuation can be a pointer as to the reasonable rental that can be fetched for a given property. However, in my opinion, a multiplication factor derived from one set of data for a given property, cannot be applied blindly to another property located at a different place, even though, both are in the same city. The methodology followed by the lower authorities was in my opinion entirely unscientific. Ld. Commissioner of Income Tax (Appeals) though he gave partial relief to the assessee did not change or apply the correct method for ascertaining the rental value of the North Beach Road property. In my opinion, ascertainment of annual value of the North Beach

ITA Nos.1637 & 2377/2017 :- 9 -:

Road property requires a fresh look by the ld. Assessing Officer. I therefore set aside the orders of the lower authorities and remit the issue back to the file of the Assessing Officer for consideration afresh in accordance with law.

In the result, appeals of both assessee and Revenue are 10. treated as partly allowed for statistical purposes.

Order pronounced on Wednesday, the 20th day of December, 2017, at Chennai.