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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI RAJENDRA & SHRI SAKTIJIT DEY
आदेश / ORDER शक्तिजीि दे, न्याययक सदस्य के द्वारा / PER SAKTIJIT DEY, J.M.
This is an appeal by the assessee against the order dated 11th February 2011, passed by the learned Commissioner (Appeals)–5, Mumbai, for the assessment year 2007–08.
M/s. Nathuram Ramnarayan Pvt. Ltd. 2 2. The assessee in total has raised 11 grounds of appeal. At the outset, the learned Counsel for the assessee expressed his intention for not pressing ground no.2. Therefore, ground no.2 is dismissed as “not pressed”.
3. In ground no.1, the assessee has challenged the decision of the Departmental Authorities in treating interest received from F.D. amounting to ` 35,42,215, as income from other sources as against business income claimed by the assessee.
Briefly the facts are the assessee a company filed its return of income for the assessment year under consideration on 29th September 2009, declaring total income of ` 4,48,760. During the assessment proceedings, the Assessing Officer noticed that the main business of the assessee is that of a commission agent. He further found that the assessee has claimed that during the year it has started the business of investment in both movable and immovable as per amended Memorandum of Association. However, he found that during the year as per computation of income, the assessee has received income from rent, interest on FDs and sale consideration from sale of building. There was no regular business activity during the previous year. However, the assessee has treated the interest on FDs as business receipts. He further noticed that against the FD interest of `
M/s. Nathuram Ramnarayan Pvt. Ltd. 3 35,42,215 and rent of ` 4,829, shown as business receipts, the assessee has claimed expenditure of ` 34,41,306 and has set–off brought forward business loss of ` 21,82,509. He, therefore, was of the view that assessee has shown the interest income under the head business and profession only for claiming expenditure as well as setting off brought forward business loss. He, therefore, called upon the assessee to explain why interest income should not be treated as income from other sources and as such the expenditures which do not have direct nexus with earning of interest income should not be disallowed. In response to the show cause notice issued by the Assessing Officer, it was submitted that as per the amended Memorandum of Association, the assessee has started the business of dealing in securities and properties. It was submitted, in the subsequent assessment year the assessee has utilised the money for the same. It was submitted as the building was sold in December 2006 and full consideration was received subsequently, the assessee could not put the money into the business of trading in securities in the impugned assessment year, hence, decided to park the fund for a temporary period in FDs so the fund do not remain idle. It was, therefore submitted, the interest income has to be considered as business income. The Assessing Officer, however, did not find merit in the submission of the assessee. He observed that though the Board
M/s. Nathuram Ramnarayan Pvt. Ltd. 4 resolution for amending the Memorandum of Association was passed in September 2005, however, assessee’s business as per its own admission could not start in the assessment year 2007–08 as the property was sold in December 2006 and full consideration was received subsequently. He, therefore, concluded that as assessee’s business has not yet started, the interest income from FDs can only be taxed under the head income from other sources. For such proposition, he relied upon the decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. v/s CIT, [1997] 227 ITR 172 (SC), and some other case laws. As a corollary to the aforesaid conclusion in treating interest income as income from other sources, expenditure debited to the Profit & Loss account were also disallowed. Against the aforesaid decision of the Assessing Officer, the assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals) also approved the view of the Assessing Officer by observing that the assessee has not started new business as per the amended Memorandum of Association. He also observed that as there is no first degree nexus between the interest income and assessee’s business, such income cannot be treated as having been derived from business as per the principles laid down by the Hon'ble Supreme Court in Liberty India v/s CIT, [2009], 317 ITR 218 (SC). Accordingly, he also upheld the decision of the M/s. Nathuram Ramnarayan Pvt. Ltd. 5 Assessing Officer in treating the interest income as income from other sources.
The learned Counsel for the assessee contesting the findings of the Assessing Officer and first appellate authority, submitted allegation by the Departmental Authorities that assessee has not commenced its business of trading in property is incorrect as the assessee in fact has made investment in two properties during the relevant previous year. In this context, he referred to Schedule–E of the Balance Sheet as on 31st March 2007, which is placed at Page–16 of the paper book. Further, referring to the amended Memorandum of Association, the learned Counsel for the assessee submitted while in the original Memorandum of Association, there are 34 clauses, in the amended Memorandum three more clauses have been inserted authorising the company to carry on business in trading of properties, securities, etc. Therefore, it cannot be said that the interest income has no connection with the business activity. It was submitted, the main object as per the revised Memorandum of Association is carrying on business of financiers and shroffs. Therefore, earning of interest is the main object and business of the company. Therefore, the interest earning is business receipt of the company. The learned Counsel for the assessee, referring to the details of interest earned during the assessment year 2007–08 to 2011–12 and the investment made in FD
M/s. Nathuram Ramnarayan Pvt. Ltd. 6 submitted that over the years both the amount of interest as well as value of FD have diminished giving credence to the fact that assessee has started investing in business activity. He further submitted, in assessments completed under section 143(3) of the Act for the assessment year 2008–09 to 2011–12, the Assessing Officer has accepted interest income from FD as business receipts of the assessee. In support of such contention, assessee furnished the copies of the relevant assessment order along with the computation of income, Balance Sheet, Profit & Loss account, etc. He, therefore, submitted that there is no reason, why interest income should be considered as income from other sources in the impugned assessment year. As far as the decisions relied upon by the Assessing Officer are concerned, the learned Counsel for the assessee submitted that those decisions will not apply to the facts of the present case, as neither the facts nor the issues involved therein are similar to assessee’s case. On the contrary, the learned Counsel for the assessee submitted, the following decisions are directly in favour of the assessee. i) Sujoy Trading Pvt. Ltd., 111 ITD 249 (Mum.) (TM); ii) Poompuhar Shipping Corporation Ltd., 39 TTJ 206 (Mad.) iii) T.N. Dairy Development Corp. Ltd., 216 ITR 535; iv) Indo Swiss Jewels Ltd., 284 ITR 389; v) Paramount Premises Pvt. Ltd., 190 ITR 259; and vi) Lok Holds, 308 ITR 356.
M/s. Nathuram Ramnarayan Pvt. Ltd. 7 7. The learned Departmental Representative, on the other hand, relying upon the findings of the Departmental Authorities submitted that during the year, neither the assessee has started any business venture nor shown any business income. The income derived by the assessee is from rent, dividend, interest and profit on sale of fixed asset. It was submitted that entire interest income is out of FD and not out of any financiers and shroffs business. It was submitted even the assessee in the course of assessment proceedings has admitted of not starting its business activities. He submitted in the aforesaid circumstances, the interest income cannot be treated as business receipts of the assessee. For this proposition, he referred to the decision relied upon by the Assessing Officer and the learned Commissioner (Appeals).
We have considered the submissions of the parties and perused the material available on record. As can be seen the only dispute in the present case is with regard to the head of income. While the assessee has claimed the interest earned on FD as business receipt the Department has treated it as income from other sources. While doing so, the Assessing Officer as well as the first appellate authority have observed that assessee has not yet started its business activities. As against the above findings of the Departmental Authorities the learned Counsel for the assessee stated before us that the assessee has in fact
M/s. Nathuram Ramnarayan Pvt. Ltd. 8 started its business operation by investing in two properties and in this context has referred to the Schedule–E of the Balance Sheet. It is further evident from the material produced by the assessee that in subsequent assessment years from 2008–09 to 2011–12, the Assessing Officer has accepted the interest on FDs as business receipts of the assessee. In view of the aforesaid fact, it is very much necessary to find out whether the assessee in fact has started its business activities or not. Since, it is the claim of the assessee that it has already started its business by investing in properties as reflected in the Balance Sheet, whereas, the Departmental Authorities have stated that the assessee has not started its business activities, we are of the opinion that this particular aspect needs to be verified by the Assessing Officer to find out whether the assessee has actually started its business activities by investing in property, etc. as per amended memorandum. If the assessee’s claim is found to be correct, then there is no difficulty in accepting the interest on FD as business receipt in view of the fact that in subsequent assessment years, the Department has accepted interest on FD as business receipts. Accordingly, grounds no.1 and 2, raised by the assessee are allowed for statistical purposes.
Grounds no.3 and 4, are dependent on the final outcome of the issue whether the income from FD is to be treated as business receipt
M/s. Nathuram Ramnarayan Pvt. Ltd. 9 or income from other sources. If the interest income is held as business receipt, the Assessing Officer can allow the expenditure debited to Profit & Loss account by verifying the authenticity and genuineness of assessee’s claim. However, if the interest income is held as income from other sources, the assessee has to establish the nexus between the claim of expenditure and income earned. Grounds no.3 and 4, are allowed for statistical purposes.
In ground no.5 and 6, the assessee has challenged the addition of an amount of ` 3 crore as additional capital gain at the hands of the assessee on account of consideration received from Rani K. Poddar, towards sale of her tenancy rights.
Briefly stated the facts relating to this issue as stated by the Assessing Officer are, the assessee owned a very old building under occupation of several tenants which was sold to Lodha Properties Development Pvt. Ltd. during the relevant previous year with the tenants still continuing to occupy the premise. Subsequently, Lodha Properties Development Pvt. Ltd. entered into separate agreements with the tenants for surrendering their tenancy rights on certain terms and conditions. One such tenant with whom the said vendee entered into agreement for surrender of tenancy rights was Rani K. Poddar, who happened to be Joint Managing Director of the assessee company
M/s. Nathuram Ramnarayan Pvt. Ltd. 10 for consideration of ` 3 crores. The Assessing Officer found that Rani K. Poddar, who was having a proprietary business named Baba Aqua Ventures was given the tenancy rights by the assessee company in the year 2004 for a monthly rent of ` 1,000. He also found that earlier the very same premise was occupied by a post office. Upon considering the fact that by paying a monthly rent of ` 1,000 for 30 months, Smt. Rani K. Poddar, was able to get benefit of ` 3 crore by surrendering her tenancy rights, the Assessing Officer entertained doubts regarding the genuineness of the transactions. He was of the view that all four directors of the company of the assessee company are family members of Smt. Rani K. Poddar. Thus, she had absolute control over day–to–day affairs of the company. The Assessing Officer opined that by making an arrangement with Smt. Rani K. Poddar, the assessee company has diverted the income of ` 3 crore which otherwise would have accrued to it if the tenancy rights were not given to Smt. Rani K. Poddar. He, therefore, treated the transaction as a colourable device to avoid tax. The Assessing Officer observed, the motive behind the entire exercise was to give part of the profit amounting to ` 3 crore on the entire deal to Smt. Rani K. Poddar. He observed if the amount of ` 3 crore which rightly belong to the assessee company would have been shown as income, then the company would have suffered tax @ 15% on a much bigger amount. Whereas, by showing income in the M/s. Nathuram Ramnarayan Pvt. Ltd. 11 hands of Smt. Rani K. Poddar, the assessee company has avoided paying excess tax. On the aforesaid basis, the Assessing Officer concluded that capital gain offered by the assessee company has to be increased by the amount of ` 3 crore. Having held so, the Assessing Officer went on further to hold that the amount of ` 3 crore offered as short term capital gain by Smt. Rani K. Poddar, is liable to be taxed in her hand as deemed dividend under section 2(22)(e) of the Act because when the money reached her, it has already accrued as profit of the assessee company. Being aggrieved of the aforesaid decision of the Assessing Officer, assessee challenged the same in appeal before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) also upheld the Assessing Officer’s view holding as under:–
“4.3.2 In line with the foregoing, I agree with the Assessing Officer that the exercise is a colourable device. The Assessing Officer's reliance on the decision in the case Macdovell & Co. Ltd. is very apt and appropriate in this regard. As may be noted, in this decision, the Hon. Supreme Court has held that even if the transaction is genuine, it could be ignored, if the object is tax avoidance and the method adopted is a colourable device. Similarly, in its decision in the case Twinstar Holdings Ltd. V/s Arland Kedia, Dy. CIT 260 ITR 6, the Hon. Bombay High Court has in the context of exercise of powers u/s 281 of the ITA, held that transfer of shares intended to defeat the process of recovery was not a bonafide business arrangement. Tested on these principles, the transactions in the Appellant's case also turn out to be attempts to defeat the process of law. It is thus found that in the Appellant's case what is apparent is not real. In face of the foregoing facts and on the template of the decisions discussed above, the arguments put forth by the Appellant are found to be misplaced. I agree with the Assessing Officer's
M/s. Nathuram Ramnarayan Pvt. Ltd. 12 observation on these arguments as recorded on pages 10 to 12 of the assessment order. In line with the foregoing, I find the action of the Assessing Officer justified. It is confirmed and the ground of appeal is dismissed.”
The learned Counsel for the assessee in his written note submitted as under:–
a) Standard Rent is to be fixed in relation to the premises and not in relation to persons and it continues tenant after tenant. - Chapsi v. Keshaviji 23 BLR 133 (Bom). b) Tenancy was granted to Smt. Rani Poddar by a duly registered document in 2004. c) Rent paid by Rani Poddar was by account payees cheque every year which has been accepted and assessed in the hands of the company. d) Tenancy in the hands of Rani Poddar has been accepted by the department in earlier years. e) Hence the tenancy is genuine and not a pre determined act of the parties to defraud the company. f) The surrender of tenancy to associate concern of Lodha Properties Development Pvt. Ltd. is also by a registered document. The tenancy was granted 2 1/2 years back. g) h) At the time the tenancy agreement was entered into with Mrs. Rani Poddar there was no discussion or negotiation with any person for the sale of the property by the company. i) All transactions are by way of registered documents and amount received by payees account cheques only. j) Smt. Rani Podar has paid short term capital gain tax @ 33.66% and by this revenue has earned more tax 10.33% amounting to Rs.33.66 lacs which works out as under:
M/s. Nathuram Ramnarayan Pvt. Ltd. 13 Tax liability on Rs.3,00,00,000 in the hands of Smt. Rani Podar being short term capital gain 3,00,00,000 @ 33.66% 1,00,98,000 Tax liability on Rs.3,00,00,000 in the hands of appellant Company being long term capital gain 3,00,00,000 @ 22.44% 67,32,000 33,66,000 k) Hence the above calculation shows that there is no loss to the revenue and no tax evasion. Infact the revenue has gained by Rs, 33,66,000/-. l) If Rani Poddar had held the property for six more months then she would have benefitted by paying tax as a long term gain at 20.60% m) Rani Poddar could have taken other benefits u/s 54 and 54EC if the property was surrendered after another 6 months. n) Many Other tenants have not been vacated as yet and no building has been constructed. o) The assumption that the company would have paid higher tax by way of dividend distribution is imaginary since the company has much more reserves but no dividend has been declared till date. p) No loan or advance has been granted by the company out of the other reserves till date to any share holder. q) The amount received by Smt. Rani Podar cannot be termed as deemed dividend as income is already assessed in the hands of Smt. Rani Podar as short term capital gain. r) Hence there is no colourful devise or planned tax evasion and the decision in the case of Mcdowel does not apply. s) The decision of Twin Star Holding deals relied upon by the CIT(Appeals) deals with transfer of shares intended to defeat the process of recovery in comparison to which the revenue has in this case gained by Rani Poddar paying tax at 33.66% (maximum rate of tax) as against the tax in the hands of the company at 22.44% as a long term capital gain. t) Rani Poddar is a protected tenant under the provision of the Maharashtra Rent Control Act, 1999 as the Act applies to the M/s. Nathuram Ramnarayan Pvt. Ltd. 14 premises located in the State of Maharashtra. u) As admitted by the Assessing Officer, the property was in a dilapilated condition occupied by tenants such as Dhobis etc. and hence the company could not have found any other new tenant for such a property. v) The increase in rent from Rs. 365 (including municipal taxes) to Rs. 1,000 (including municipal taxes) is an adhoc increase which has benefitted the company as otherwise only a one time increase of 5% would have been permitted as per S. 7(14)(b)(ii) of the Maharashtra Rent Control Act, 1999. w) The property was transferred by the company subject to the tenancy of various tenants in the building and hence the surrender of tenancy can only be made by the tenants to the purchaser after the sale only. x) The transaction is genuine not affected by the decision of Mcdowel since tax paid is higher than that would be payable by the company and thus the object is not tax avoidance not is the nature colourful device. y) Mrs. Rani Poddar has transferred the tenancy after the sale of the property by the appellant having obtained the consent of the new Landlords and not the appellant. z) It may be noted that the compensation paid to Mrs. Rani Poddar for surrender of tenancy is on the same basis as has been paid to other tenants. aa) Another transfer effected by the tenant in May 2004 has been accepted by the Assessing Officer as genuine where the rent received by the appellant is also same i.e Rs. 1,000/- per month as in the case of Mrs. Rani Poddar. bb) Reliance on Twin Star Holding 260 ITR 6 (Born) is misconceived since that case was on the issue where there was a tax planning to defeat the process of recovery and avoid tax. In the present case the facts are that the sale in the hands of the appellant has resulted in a greater tax which has been paid to the revenue. Thus there is no attempt to defeat the process of recovery and hence this case is not applicable.
The learned Departmental Representative, on the other hand, relying upon the reasoning of the Assessing Officer and the learned
M/s. Nathuram Ramnarayan Pvt. Ltd. 15 Commissioner (Appeals) submitted that the assessee has adopted a colourable device to shift its tax burden, hence, the Departmental Authorities were correct in making addition of ` 3 crore as capital gain.
Having considered the submissions of the parties and perused the orders of the Departmental Authorities and other material placed before us, we find the following facts emerging therefrom. The assessee was the owner of a building at Walkeshwar Road, which is under occupancy of several tenants one of them being Smt. Rani K. Poddar, who occupied the premise from the year 2004, after it was vacated by a Post Office which was to occupying the premise for more than 40 years. As is evident from the material on record, the assessee company entered into a registered tenancy agreement with Smt. Rani K. Poddar, on 16th July 2004, by virtue of which Smt. Rani K. Poddar, occupied subject premise as a tenant on monthly rent of ` 1,000. It is also noticed the assessee company sold the property to Lodha Property Development Pvt. Ltd. through registered conveyance deed on 15th December 2006. It is also a fact on record that the assessee company declared capital gain on transfer of the property. Thus, as can be seen, after sale of the building on 15th December 2006, for all practical purposes, the assessee company lost its right, title, interest over the property. It is also not in dispute that at the time of sale of the building, several tenants were occupying the property one
M/s. Nathuram Ramnarayan Pvt. Ltd. 16 amongst them being Smt. Rani K. Poddar. It is also evident on record that Lodha Property Development Pvt. Ltd. paid compensation to all the tenants who were occupying the property for surrendering their tenancy rights. Similarly, amount of ` 3 crore was paid to Smt. Rani K. Poddar, for surrendering her tenancy rights. It is also evident that the amount paid as compensation to Smt. Rani K. Poddar, by Lodha Property Development Pvt. Ltd. is not more than similar compensation paid to other tenants. In the aforesaid facts and circumstances, when the assessee has sold the property to a third party and the transaction relating to surrender of tenancy rights is between the tenant and the purchaser of the property, how such a transaction can be considered to be a sham transaction or colourable device is not understood. As already stated, the assessee has entered the tenancy agreement with Smt. Rani K. Poddar, in July 2004. Therefore, prior to more than two years before the sale, the assessee could not have conceived that the purchaser would be paying an amount of ` 3 crore towards surrender of tenancy rights by the tenant. Therefore, it is totally unbelievable that for diverting a part of profit, the assessee company would have admitted Smt. Rani K. Poddar as tenant. Moreover, when the purchaser has paid compensation to all the tenants for surrendering their tenancy rights, it cannot be said that the assessee has diverted a part of its profit by adopting a colourable device. As far as the M/s. Nathuram Ramnarayan Pvt. Ltd. 17 allegation of the Department that by paying rent of ` 30,000 for 30 months, Smt. Rani K. Poddar, has got an amount of ` 3 crore, it is to be observed that after vacation of the premise by the post office, which was occupying it for a monthly rent of ` 1,000, the assessee thought it prudent to rent out the premise with similar rent of ` 1,000, to Smt. Rani K. Poddar, instead of keeping it vacant. Therefore, the decision taken by the assessee company being a business decision, the same cannot be challenged by the Departmental Authorities. Moreover, it is seen from the submissions made before the Assessing Officer in the course of assessment proceedings on 21st December 2009, the assessee has demonstrated that during the relevant period other tenants were also paying similar rent. That being the case, it cannot be said that the transactions relating to renting of premises by the assessee company to Smt. Rani K. Poddar, or the subsequent transaction between Smt. Rani K. Poddar and Lodha Property Developers Pvt. Ltd. for surrendering tenancy rights are sham transaction, more so, when the transactions are through valid document. It will be pertinent to mention here that in the course of hearing, it has been demonstrated by the learned Counsel for the assessee that the Departmental Authorities have gained in terms of revenue as Smt. Rani K. Poddar, has paid short term capital gain tax @ 33.66% whereas if the assessee would have shown the amount of `
M/s. Nathuram Ramnarayan Pvt. Ltd. 18 3 crore as capital gain, it would have paid tax @ 22.44%. Finally, it is not disputed that Smt. Rani K. Poddar, has declared short term capital gain on the amount of ` 3 crore received by her on surrendering tenancy right and paid taxes. The department has also accepted it. That being the case, we fail to understand how the same income can again be assessed at assessee’s hand. Thus, considering the aforesaid facts, we are of the firm view that addition of ` 3 crore as capital gain at the hands of the assessee is on mere presumption and surmises and not on reasonable grounds. Therefore, we have no hesitation in deleting the addition made by the Assessing Officer and confirmed by the learned Commissioner (Appeals).
As far as the observations made by the Assessing Officer that the amount of ` 3 crore should be treated as deemed dividend at the hands of Smt. Rani K. Poddar, we fail to understand how the Assessing Officer can take such a view concerning a third person in the assessment proceedings of the assessee. In our view, the observation of the Assessing Officer is totally irrelevant and not required for the purpose of assessee’s assessment. Hence, it deserves to be ignored. Even, otherwise also since we have held that the amount of ` 3 crore cannot be treated as income of the assessee company, this issue becomes redundant. In view of the above, grounds no.5 and 6, are allowed.
M/s. Nathuram Ramnarayan Pvt. Ltd. 19
In ground no.7, the assessee has challenged the decision of the Departmental Authorities in taking the market rent of property at ` 2.04,284, as against ` 1,55,239, shown by the assessee.
Briefly the facts are during the assessment proceedings, the Assessing Officer found that assessee has shown income from house property at Walkeshwar at ` 1,55,239.
After calling for various details with regard to the rent received, the Assessing Officer observed that as per the Rent Control Act, if the standard rent exceeds the rent received the same has to be taken as ALV. He, therefore, called upon the assessee to submit his explanation. The assessee in its reply stated that the tenants are in occupation of the premise from the year 1940 and rent has been collected on standard basis till 2006. It was submitted, there is no increase in rent as a result of restriction imposed under the Rent Control Act. The Assessing Officer, after considering the submissions of the assessee observed that as per Maharashtra Rent Control Act, 1999, owner of the property can make annual increase of 4% to the rent charged. Taking into account the aforesaid provision, the Assessing Officer increased the rent received by the assessee in respect of all the tenants except Smt. Rani K. Poddar, by 4% as a result of which the ALV of the property was determined at ` 2,04,284
M/s. Nathuram Ramnarayan Pvt. Ltd. 20 as against ` 1,55,239. The learned Commissioner (Appeals) also approved the decision of the Assessing Officer.
The learned Counsel for the assessee submitted before us that 4% increase as provided under the Maharashtra Rent Control Act is at the option of the owner. Therefore, unless there is actual increase in rent, the Assessing Officer cannot enhance the rate by 4% by taking recourse to Maharashtra Rent Control Act.
The learned Departmental Representative supported the orders of the Departmental Authorities.
We have heard both the parties and perused the material available on record. It is evident on record that relying upon the provisions of Maharashtra Rent Control Act, which provides for 4% annual increase in the rent, the Assessing Officer has determined the ALV. However, it is very much clear from the said provision that increase of 4% in rent is at the option of the owner. Therefore, unless the rent has actually been increased by 4% no addition can be made to the ALV by notionally increasing the rent @ 4%. There being no material on record to show that the assessee has actually increased rent by 4%, the determination of ALV is without any basis. Accordingly, we restrict the ALV to the amounts shown by the assessee. This ground is allowed.
M/s. Nathuram Ramnarayan Pvt. Ltd. 21
In groundsno.8 to 10, are on the addition of ` 11.70 lakh on account of determination of ALV of the premise given on rent to Smt. Rani K. Poddar.
Briefly the facts are as stated earlier a part of the Walkeshwar property previously occupied by a Post Office was rented to Smt. Rani K. Poddar, in July 2004, at a monthly rent of ` 1,000. The Assessing Officer, during the assessment proceedings, entertained a view that the standard rent will not be applicable for the premise giving on rent to Smt. Rani K. Poddar, because it is not a continued tenancy and moreover the assessee was charging more than three times the rent being charged from the Post Office as on 1st October 1987. He further observed that in the tenancy agreement entered with Smt. Rani K. Poddar, the market value of the rent has been taken at ` 1.20 lakh for stamp duty purposes. He observed that for a property of 1,750 sq.ft., monthly rent of ` 1,000 is less than the market value. Further, he observed that the prevailing market rate of rent at Walkeshwar is 140 per sq.ft. However, considering the fact that the property was in a dilapidated condition, he determined ALV at ` 1,56,000 per month. Further, considering the fact that property was in possession of tenant for nine months proportionate ALV was determined at ` 11.70 lakh.
M/s. Nathuram Ramnarayan Pvt. Ltd. 22 25. The learned Commissioner (Appeals) also approved such determination of ALV.
The learned Counsel for the assessee submitted before us, the Assessing Officer could not have determined the ALV at the market value in view of the provisions of Rent Control Act. He submitted that standard rent of a premise has to be fixed in relation to the premise and not in relation to person as it continues tenant after tenant. The learned Counsel for the assessee submitted on the basis of market value of the property for registration purpose, standard rent cannot be determined. In support of his contention, he relied upon the decision of the Tribunal, Mumbai Bench, in DCIT v/s Reclamation Real Estate Co. India P. Ltd., ITA no.1411-1413/Mum./2007, and ACIT v/s Simran R. Maker, ITA no.7338/Mum./2011, order dated 7th August 2015.
The learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals).
We have heard the rival contentions and perused the material available on record. It is very much evident from the observations of the Assessing Officer that he has determined the ALV of the premise let out to Smt. Rani K. Poddar, on the basis of market value. However, it is pertinent to observe here that in case of other tenants in the same
M/s. Nathuram Ramnarayan Pvt. Ltd. 23 premise, the Assessing Officer has determined the ALV by making an increase of 4% as per Maharashtra Rent Control Act. Why a differential treatment is made only in case of premise rented out to Smt. Rani K. Poddar, is not discernible. In the worst case, the Assessing Officer like in case of other tenants could have increased the rent by 4% by following Maharashtra Rent Control Act. However, even such notional increase is also not permissible as such increase is at the option of the owner. Therefore, unless the owner chooses to increase the rent the Assessing Officer cannot make notional increase by 4%. It is also necessary to observe that during the assessment proceedings itself, the assessee has brought material before the Assessing Officer to demonstrate that in respect of similar premise rent @ ` 1,000 has been charged. That being the case, we do not see any justifiable reason to uphold the ALV determined by the Assessing Officer. Accordingly, we delete the addition made. These grounds are allowed.
In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 30.10.2015