1995 (9) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Determination of annual letting value of property.
2. Levy of interest under sections 215 and 217.
3. Deduction under section 80M.
4. Disallowance under section 43B.

Issue-wise Detailed Analysis:

1. Determination of Annual Letting Value of Property:

The main dispute pertains to the determination of the annual letting value of part of the building located at 22, Community Centre, New Friends Colony, New Delhi. The assessee-company, which derives income from manufacturing and selling electronic components, had let out portions of the property to close relatives who subsequently sublet the same to sister concerns. The Assessing Officer (AO) considered the rent disclosed by the assessee as exceptionally low and assessed the rental value based on market rates. The assessee contended that the income from house property should be assessed either as per the standard market rent or the actual rent received or receivable, whichever is higher, as per Section 23 of the Income Tax Act, 1961. The AO's determination was challenged on the grounds that it contravened the well-settled law laid down by the Supreme Court, which holds that where the property is governed by the Rent Control Act, the expected rent cannot exceed the standard rent. The Tribunal concluded that the annual letting value should be assessed based on the actual rent received, which was higher than the standard rent, and included the monetary benefit assessed by municipal authorities due to the loan advanced for construction.

2. Levy of Interest under Sections 215 and 217:

For the assessment year 1987-88, the assessee sought consequential relief regarding the levy of interest under sections 215 and 217. The Tribunal directed the AO to allow the consequential relief due to the reduction in income.

3. Deduction under Section 80M:

For the assessment year 1988-89, the assessee claimed a deduction under section 80M amounting to Rs. 43,695, which the AO restricted to Rs. 36,000. The CIT(A) estimated the expenditure for earning dividend income at Rs. 1,000, which the Tribunal found more reasonable. The AO was directed to recalculate the deduction after deducting Rs. 1,000 from the gross income. Similarly, for the assessment year 1989-90, the CIT(A) estimated the expenditure at Rs. 1,000, and the Tribunal upheld this estimation as reasonable, dismissing the ground of appeal.

4. Disallowance under Section 43B:

For the assessment year 1988-89, the AO disallowed Rs. 13,704 under section 43B, comprising Rs. 5,232 on account of unpaid sales tax and Rs. 7,268 out of provident fund. The Tribunal held that the disallowance of provident fund payments was not warranted as the payment had not become due before the end of the previous year. The disallowance of Rs. 5,232 for unpaid sales tax was confirmed, with the AO directed to allow the deduction in the year of payment, i.e., assessment year 1989-90.

Conclusion:

The appeals for the assessment years 1987-88, 1988-89, and 1989-90 were partly allowed. The Tribunal provided specific directions for the AO to reassess the annual letting value, allow consequential relief for interest levied under sections 215 and 217, recalculate deductions under section 80M, and address the disallowance under section 43B appropriately.