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2008 (2) TMI 654 - AT - Income TaxClaim deduction of Interest paid on borrowed capital u/s 36(1)(iii) - Computation of Income from house property - Determination of annual letting value u/s 23(1)(a). Deduction for interest paid on borrowed funds under section 36(1)(iii) - HELD THAT:- There is no exemption claimed under section 10(2A) of the Act by the assessee. Section 10(14) clearly states that expenditure incurred by the assessee in relation to income which does not form part of total income under the Act will not be allowed. In this case, for both the assessment years, there is no income earned by the assessee which does not form part of the total income under the Act. Thus, we do not see any reason why the claim of the assessee is not allowable under section 36(1)(iii). Coming to the argument of the ld DR that the judgment of the Hon’ble Apex Court in the case of Rajendra Prasad Moody [1978 (10) TMI 133 - SUPREME COURT] is not applicable to this case, we find that in the case of M. Ethurajan [2004 (7) TMI 39 - MADRAS HIGH COURT] has held that the propositions laid down in Rajendra Prasad Moody’s case (supra) for allowability under section 57(iii), are equally applicable for deductions claimed under section 36(1)(iii) or section 37. Thus this argument of the Revenue is without any merit. Therefore, we are of the considered opinion that the first appellate authority for the assessment year 2001-02 has rightly come to a conclusion that the claim of the assessee for the deduction under section 36(1)(iii) has to be allowed. Taxability of income - under head "Income from business or profession and not under the head "Income from other sources" - We uphold the order of the first appellate authority on these issues for both the assessment years and dismiss the appeals of the Revenue. Determination of annual letting value under section 23(1)(a) - actual rent received - HELD THAT:- No material has’ been gathered by the AO and brought on record for supporting his conclusion let alone putting the same to the assessee. Even if the AO had certain material the same has not been put to the assessee and this is violation of principles of natural justice has held by the Bench in the case of Makrupa Chemicals (P.) Ltd. [2006 (9) TMI 207 - ITAT BOMBAY-F]. On that ground, the issue had been remanded back to the Assessing Officer, in that case. In the case before us we do not feel the necessity to do so. The CIT(A) in his order, has recorded that the Municipal Rateable Value as per the Delhi Municipal Authority at Rs. 22,230. This is less than the actual rent received at Rs. 60,000. The Assessing Officer has not made any attempt whatsoever to decide the standard rent and under these circumstances, the municipal rateable value assumes significance. As the actual rent received is more than the municipal rateable value and in view of the decision of the Hon’ble Supreme Court in the case of Sheila Kaushish[1981 (8) TMI 1 - SUPREME COURT]. we hold that the actual rent received should be taken as municipal rateable value. We also find that the facts and circumstances of this case, warrants taking into consideration the huge deposit while determining the fair market value. Wherever deposits are high, the rent is bound to be low In any event as Rent Control Act applies to this property only standard rent can be taken as the annual letting value. In the absence of standard rent, municipal rateable value is to be taken. As municipal rateable value is less than the actual rent, the actual rent shall be the fair market value. In the result, we uphold the contentions of Shri Mistry and allow both the appeals filed by the assessee. In the result, the appeals filed by the assessee are allowed and the appeals filed by the Revenue are dismissed.
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