VIJAY BALDEV MEHRA,MUMBAI vs. ADDL CIT 26(1), MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) This assessee is aggrieved by the impugned order dated 17/10/2013 of the ld. First Appellate Authority, Mumbai. The only ground agitated by the assessee is with respect to upholding the determination of annual value of the property in terms of provisions of sections 23(1)(a) at against Rs.35,19,000/- when actual rent received was Rs.4,20,000/- and offered for taxation in terms of provisions of section 23(1)(b) of the Income Tax Act, 1961 (hereinafter the Act) without appreciating the fact that the rent of Rs.2,55,000/-, per month was received for the said property on the basis of earlier agreement entered into on 21/05/2006 with M/s Matrix Industries South East Asia Pvt. Ltd. 2. During hearing, the ld. counsel for the assessee, Shri Girish Dave, advanced arguments which is identical to the ground raised by further submitting that the assessee is a owner of flat which was let out at Rs.35,000/- per month for three years vide agreement dated 23/10/2008. It was also explained that this flat was earlier let out to Matrix Industries at the rent of Rs. 2,55,000/-, per month on agreement for three years and assessee received security deposit of Rs.5.10 lakhs. The agreement was terminated prematurely and the tenant vacated the same. The Assessing Officer got enquiry from the same society, wherein, the Inspector made enquiries and reported that in the same society, a flat measuring 530 Sq. Ft., the owner of the flat was getting rent at Rs.65,000/- per month, whereas, the area of flat, owned by the assessee, is of 2200 Sq. Ft. It was contended that the enquiry report was not confronted to the assessee. Reliance was placed upon the decision in Tin Box Company vs CIT (2001) 116 taxman 491 (SC) ; 249 ITR 216 (SC) and DCIT vs Diven Dembla (2013) 37 taxman.com 127 (Mum. Trib.). It was also contended that the submissions of the assessee dated 11/04/2013 were not considered by the ld. Commissioner of Income Tax (Appeals).

2.2. We have considered the rival submissions and perused the material available on record. The facts in brief, are that the assessee is the owner of four bedroom flat having area of 2200 Sq. Ft. at Blue Heaven Cooperative Housing Society, situated in posh area of Malabar Hills. Earlier, this flat was let out at a monthly rent of Rs.2,55,000/- (A.Y. 2006-07) and a security deposit of Rs.5,10,000/- was received by the assessee for a period of three years. Later on, the assessee entered into another leave and license agreement dated 23/10/2008 for the same flat on a interest free security deposit of Rs.4 Crores and a monthly rent of Rs.35,000/-. The ld. Assessing Officer was of the view that Rs.35,000/- is not the true/fair rental value of the property, more specifically when the same property, for earlier years, was rented out at a rent of Rs.2,55,000/- per month. It is also noteworthy that before coming to this conclusion, the ld. Assessing Officer, sent his Inspector to examine the facts from the same society/nearby area, who reported that one flat in the same society measuring 530 Sq. Ft. was rented out for Rs.65,000/- per month and since the flat of the assessee is of 2200 Sq. Ft. having four bedrooms, therefore, proportionately, the rent comes to Rs.2,70,000/- per month.

2.3. On appeal, before the ld. Commissioner of Income Tax (Appeals), the factual matrix along with the submissions of the assessee (reproduced at pages 5 to 8 of the impugned order) and thereafter affirmed the stand of the ld. Assessing Officer. The assessee is in further appeal before this Tribunal.

2.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts, narrated hereinabove, first of all, we are reproducing hereunder the provision of section 23 of the Act for ready reference and analysis:-

“Annual value how determined.

(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 had been let.” 2.5. If the aforesaid provision of the Act is analyzed, Explanation-1 has clarified that for the purposes of sub- section (1), the annual rent means (a) The sum for which the property might reasonably be expected to be let out 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.

2.6. For the purposes of determination of annual value, as per section 23(1), for the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year (section 23(1)(a)) or the actual rent received or receivable by the owner in respect thereof (where the property or part of the property is let). The excess of sum referred to in section 23(1)(a), the amount so received or receivable (section 23(1)(b) of the Act).

2.7. Prior to the 1975 amendment i.e. up to A.Y. 1975- 76, actual rent received or receivable was not decisive in determination of annual value of the property, although, it was an important piece of evidence. Up to A.Y. 1975-76, the standard rent was to be regarded as being the annual letting value and not the actual rent received by the landlord assessee from the tenant (Balkrishnan Kapoor vs ITO 219 ITR 141)(Del.) and L. Banshidhar & Sons vs CIT (1993) 201 ITR 655. After the 1975 amendment, if the actual rent received or receivable is in excess of notional annual value, the actual rent shall be deemed, u/s 23(1)(b) of the Act, to be the annual value, for and from A.Y. 1976-77 (CIT vs H.P. Sharm 122 ITR 675 (Del.)). It is pertinent to note that the first four lines as also the last four lines of the paragraph title “actual rent realized, how far decisive” have been reproduced verbatim (excluding the citations) in CIT vs Johny Joseph (2000) 241 ITR 423 (Ker.) and CIT vs G. Ramesan ; B. Indira Devi (2000) 241 ITR 426 (Ker.). Where letting out property is subject to the limitation provided under the rent control enactment and there is nothing on record to show that the agreed rent is not fair and reasonable then the actual rent received by the assessee should be regarded as the fair annual letting value of the property. Our view find support from the decisions in CIT vs Mody Spinning & Mfg. Mills Company Ltd. 125 ITR 361 (All.) and CIT vs Mody Industries Ltd. 200 ITR 350 (Del.). From a conjoint reading of section 23(1)(a) and 23(1)(b), it is clear that the higher of the two amounts vis the actual rent received or receivable or the reasonable rent, which refers to standard or fair rent, should be taken as the “annual value” for the purposes of charged u/s 22 of the Act (CIT vs Parasmal Choradia (1998) 145 CTR (Mad.) 468)). The Hon’ble jurisdictional High Court in CIT vs J.K. Investors Bombay Ltd. (2001) 248 ITR 723 held that in section 23(1)(b), the word “receivable” the notes payment of actual rent to the assessee. It was further held, if in a given year, a portion of the actual rent is in arrears, it would still come within section 23(1)(b) and it is for this reason that the word “receivable” must be read in the context of the word “received” in section 23(1)(b) of the Act.

2.8. If the totality of facts and the judicial pronouncements discussed hereinabove are kept in juxtaposition with the facts of the present appeal, admittedly, the property was let out to Metrics Industries South East Asia Pvt. Ltd. in the year 2006 for a monthly rent of Rs.2,55,000/-. The agreement provided that the assessee would receive annual rent of Rs.30,60,000/-, in advance for each term of twelve months and the agreement was for a period of three years along with the security deposit of Rs.5,10,000/-. Subsequently, the assessee prematurely, terminated the agreement and entered into leave and license agreement dated 23/10/2008 for the same property with Hindustan Unilever Ltd. for a monthly rent of Rs.35,000/- only and the assessee received interest free security deposit of Rs.4 crores. The ld. Assessing Officer issued show cause notice to the assessee as to why Rs.2,55,000/-, being the normal rent of the property, which is evident from earlier agreement, should not be considered to determine the ALV as per provisions of section 23(1)(a) of the Act. The reply of the assessee was duly considered and thereafter considering the submissions of the assessee, a particular decision was arrived at. Therefore, the contention of the assessee that proper opportunity was not provided or submissions of the assessee were not considered is factually incorrect. It is pertinent to mention here that there is no question of any presumption, when vide agreement in 2006, the assessee received the monthly rent of Rs. 2,55,000/-. It is also noted that before coming to a conclusion, the Assessing Officer made enquiries through his Inspector and it was found that in the same society, a one bedroom flat measuring 530 Sq. Ft. was let out for a monthly rent of Rs.65,000/-. The flat of the assessee was of 2200 Sq. Ft. consisting of four bedrooms and if proportionate rent is taken, it should have been Rs.2,70,000/- per month. However, considering that the assessee was actually receiving rent in A.Y. 2006 on a monthly rent of Rs.2,55,000/-, he increased at the rate of 5% per annum and worked out the ALV of the property at Rs.2,93,250/-, but by taking a lenient view, he adopted the monthly rent at Rs.2,87,500/-. While coming to this conclusion, the ld. Assessing Officer considered various decisions including Daulat Raj Kapoor vs NDMC (122 ITR 700)(SC). We note that the Hon’ble Apex Court examined the issue of understatement of rent, due to interest free deposits and bank guarantees taken by the landlord, in DIT vs Transmaraine Corporation (Civil Appeal No.5470 of 2011) (arising out of SLP No.8999 of 2009), wherein, the Hon’ble Apex Court discussed/examined the case of J.K. Investors (Bombay) Ltd. (248 ITR 723)(Bom.) and laid down certain questions. Totality of facts clearly indicates that rent has been understated by the assessee for the reason that same flat was rented out in 2006 on a rent of Rs.2,55,000/- but later on rented out for Rs.35,000/- (in 2008) by getting interest free security deposits of Rs.4 crores. In such a situation, no doubt the assessee understated the rent. At the same time, we find that the ld. Assessing Officer and also the ld. Commissioner of Income Tax (Appeals) considered the facts like earlier rent received by the assessee, present market rate in the same building, benefit arrived by the assessee in the form of interest free security deposit of Rs.4 crores, independent enquiry from the same building/ adjoining area and then reached to a particular conclusion. It is further noted that even the ld. Commissioner of Income Tax (Appeals) has already considered the decision from Hon’ble jurisdictional High Court in CIT vs Akshay Textile Trading Agency Pvt. Ltd., third member of the Tribunal in ITO vs Baker Technical Services Pvt. Ltd. 125 ITD 1(Mum.)(TM), wherein, the decision from Hon’ble High Courts and Hon’ble Apex Court were considered. So far as, the contention of the ld. counsel for the assessee that the submissions were partly considered and the matter may be sent to the file of the ld. Assessing Officer, is concerned, we are not agreeing with this proposal because the facts are very much clear and no useful purpose will be served in sending this file to the file of the ld. Assessing Officer because, the ld. Assessing Officer has already made required enquiries from the area including the rent prevalent in the same society, where the flat in question is available. As mentioned earlier, if proportionate rent is adopted (One bedroom flat of 530 Sq. Ft. in the same building was let out for a monthly rent of Rs.65,000/-) still it comes to Rs.2,70,000/- per month, thus, it can be concluded that the ratio laid by Hon’ble Apex Court in DIT vs Transmariane Corporation, squarely applicable to the case of the assessee, thus, we find no infirmity in the conclusion drawn in the impugned order. It is affirmed.

Finally, the appeal of the assessee is dismissed.

This order was pronounced in the open court on 11/03/2016.

Sd/- Sd/- (Jason P. Boaz) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 11/03/2016 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.