TMI Blog2011 (5) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... taken as determinative factor to arrive at a "fair rent". In the case in hand, though, AO made an enquiry about the fair market rent of the property and has given a finding that due to interest free deposit received by the assessee, actual rent of the property is deflated. However, the Assessing Officer, while determining the fair market rent under section 23(1)(a) has directly added 10 per cent of the interest free deposit being the bank interest rate prevailing on FD. In view of the Full Bench decision of the Hon'ble Delhi High Court cited supra, no addition can be made on notional interest on the interest free security deposit while determining the ALV under section 23(1)(a) - set aside the issue to the record of the Assessing Officer with a direction to re-adjudicate the issue. - 780 TO 782 (MUM.) OF 2009 - - - Dated:- 27-5-2011 - P.M. JAGTAP, VIJAY PAL RAO, JJ. S.K. Singh for the Appellant. D.K. Shivram and Rahul K. Hakani for the Respondent. ORDER Vijay Pal Rao, Judicial Member. These three appeals filed by the revenue are directed against the separate orders of the CIT(A) one dated 10-12-2008 and the other two dated 19-11-2008 for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 301/10 taxmann.com 195. 3.1 On the other hand, the ld. AR of the assessee has relied on the order of the Coordinate Bench of the Tribunal in the case of Dy. CIT v. Reclamation Reality India (P.) Ltd. [IT Appeal No. 1411/Mum./2007, dated 26-11-2010] and submitted that the ld. CIT(A) is right in holding that no notional benefit on account of interest free deposit for the purpose of determining the ALV can be added. 4. We have considered the rival contentions and perused the relevant material on record. For the purpose of taxation of income from house property, section 22 prescribes the annual value of the property consisting of building or land appurtenant thereto of which the assessee is owner. Thus, income from house property is measured as annual value of the property. Section 23 contemplates the manner in which the annual value of the property has to be determined. As per sub-section (1) of section 23 the Assessing Officer has to first determine the sum for which the property might reasonably be expected to fetch the rent from year to year and then if the property is let out compare the same with the annual/actual rent received or receivable. Thus, as per clause (a) of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to determine the fair rent under section 23(1)(a). It is also not clear as under what provision, the additions on account of interest on interest free deposits is made. It is pertinent to note that the alleged certificate given by the society for retable value was not available before the authorities below as it was given much later on 20-10-2003. Thus, in our view, the Assessing Officer has not followed the proper procedure as provided under the provisions of section 23(1). As we have discussed in the forgoing paragraphs that the decision of the Hon'ble Supreme Court in the case of Mrs. Shiela Kaushish (supra), the issue was whether the actual rent received by the land lord is relevant for determination of the annual value as per section 23(1). The Hon'ble Supreme Court held that the standard rent of different portions of the ware house determinable under the provisions of Rent Control Act should be taken the annual value of the ware house within the meaning of sub-section (1) of section 23 of the Act and not the actual rent. Thus, the Hon'ble Supreme Court held that the actual rent received by the assessee from the tenant should not be taken to be the annual value within the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 723 (Bom.) categorically rejected the formula of addition of notional interest while determining the "fair rent" in the following manner : ".....Before concluding we may point out that under section (23)(1)(b), the word "receivable" denotes payment of actual annual rent to the assessee. However, if in a given year a portion of the actual annual 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). In the light of the above interpretation, notional interest cannot form part of the actual rent as contemplated by section (23)(1)(b) of the Act. We once again repeat that whether such notional interest could form part of the fair rent under section (23)(1)(a) is expressly left open." 14. It is, thus, manifest that various Courts have held a consistent view that notional interest cannot form part of actual rent. Hence, there is no justification to take a different view that what has been stated in Asian Hotels Ltd. (supra). 15. The next question would be as to whether the annual letting value fixed by the Municipal Authorities under the Delhi Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch statutory limit, no deduction for such excess is allowed. The deductions for municipal taxes and repairs are not allowed to the extent they are borne by the tenant. However, even such actual reimbursements for municipal taxes, insurance, repairs or maintenance of common facilities are not considered as part of the rent and added to the annual value. Accordingly, there can be no scope or justification whatsoever for making any addition for any notional interest for determining the annual value. Whatever benefit or advantage which is derived from the deposits - whether by way of saving of interest or of earning interest or making profits by investing such deposit - the same would be reflected in computing the income of the assessee under other heads. In our view there is no scope for making any addition on account of so-called notional interest on the deposit made by the tenant, since there is no provision to this effect in section 22 or 23 of the Income-tax Act, 1961. 16. In fact, this is the view taken even by the Supreme Court in the case of Shiela Kaushish v. CIT [1981] 131 ITR 435 (SC) on account of similarity of the provisions under the municipal enactments and section 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not binding on the Assessing Officer. If the Assessing Officer can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/evidence placed on record. This view is fortified by the decision of Patna High Court in the case of Kashi Prasad Kataruka v. CIT [1975] 101 ITR 810. 17. The above discussion leads to the following conclusions : (i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances, (ii) An inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness, (iii) Actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration, (iv) Such ALV, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property, (v) if standard rent has not been fixed by the Rent Controller, then it is the duty of the Assessing Officer to determine the standard rent as per the provisions of rent control enactment, (vi) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of J.K. Investors (supra) wherein the Court hinted that various factors may become relevant in determining the "fair rent". The precise observations of the Court in the said judgment are as under : "At the cost of repetition it may be mentioned that under section (23)(1)(a), the Assessing Officer has to decide the fair rent of the property. While deciding the fair rent, various factors could be taken into account. In such cases various methods like the contractors method could be taken into account. If on comparison of the fair rent with the actual rent received, the Assessing Officer finds that the actual rent received is more than the fair rent determinable as above, then the actual rent shall constitute the annual value under section (23)(1)(b) of the Act. Now, applying the above test to the facts of this case, we find a categorical finding of fact recorded by the Tribunal that the actual rent received by the assessee was more than the fair rent. Under the above circumstances, in view of the said finding of fact, we do not see any reason to interfere." 29. From the decision of the Hon'ble Full Bench of the Hon'ble Delhi High Court, it is clear that for determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Assessing Officer as well as CIT(A). And it is also not clear from the record as under which clause, the Assessing Officer has made this addition. Accordingly we restore the issue to record of the Assessing Officer and direct the Assessing Officer to determine the sum for which the property mighty reasonably expected to let from year to year under section 23(1)(a) after considering all relevant factors as discussed above and thereafter compared the same with the annual rent received or receivable by the assessee under section 23(1)(b) and then decide the issue as per law." 5. In the case in hand, though, the Assessing Officer made an enquiry about the fair market rent of the property and has given a finding that due to interest free deposit received by the assessee, actual rent of the property is deflated. However, the Assessing Officer, while determining the fair market rent under section 23(1)(a) has directly added 10 per cent of the interest free deposit being the bank interest rate prevailing on FD. In view of the Full Bench decision of the Hon'ble Delhi High Court cited supra, no addition can be made on notional interest on the interest free security deposit while ..... X X X X Extracts X X X X X X X X Extracts X X X X
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