TMI Blog2012 (5) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004-05 on the following ground :-" (1) On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) has erred in deleting the addition of Rs. 24,30,000/- on account of notional interest on interest free deposits and advance rent received by the assessee to the ALC of the property relying upon the decision of the Hon'ble Bombay High Court in the case J.K. Investors 112 Taxmann 180 (Bom) ignoring the decision of the in the case of ITO Baker Technical Services (P) Ltd. 126 TTJ Mumbai (TM) 455. (2) The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored." 2. The assessee is an individual engaged in the business of acquiring and letting out properties on leave and license basis. She also carried out the business as a Fashion Designer through her proprietary concern "M/s. Azzura International". The relevant facts for the adjudication of the issue involved are that, during the course of assessment proceedings, the Assessing Officer noted that the appellant had received huge amounts of deposits from the tenants, he therefore, required to show cause as to why the notional interest on the deposits sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under :- "3.13 I have considered the submissions of the Appellant and also the order of CIT(A) -XIX for assessment year 2003-04 and have observed that the factual position during the assessment year under consideration is the same as that in the assessment year 2003-04. The AC has considered notional interest on interest free security deposits to be part of annual value u/s 23(1)(b) of the Act. The jurisdictional High Court has in the case of J K Investors 112 Taxmann 180 (Bom) and the Calcutta High Court in the case of Saty Co. Ltd. (75 Taxmann 193)(Cal) have clearly held that notional interest on interest free security deposits cannot be taken to be part of annual value u/s 23(1)(b) of the Act. In the facts of the case, the question whether notional interest on interest free security deposits can be taken to be part of annual value u/s 23(1)(a) does not arise. However, this cannot be done even u/s 23(1)(a). CBDT Circular No. 204 dated 24.7.1976 (para 9) and the ratio of the decision of the jurisdictional bench of ITAT including the decision in the case of Parkpaper Industries Ltd. (25 SOT 406)(Mum) are clear authorities for the proposition that municipal ratable value needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (Appeals) and the Assessing Officer and also gone through the various decisions as have been relied upon by the parties. Section 23 provides for determination on annual value of the property in the following manner :- [Annual value how determined. 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- ( a ) the sum for which the property might reasonably be expected to let from year to year; or ( b ) where the property or any part of the property is let and the actual rent received or receivable 46 by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or ( c ) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the sum for which the property might reasonably be expected to let from year to year. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub section (1) of section 23 has been amended to provide that the where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property". 5.2 From the said Circular it is clear that if the Municipal valuation of the property is more than the rent received or receivable then the same should be taken for the purpose of valuation. However, if the rent received or receivable is more than the municipal value then the actual rent received or receivable will be taken as annual letting value of the property within the meaning of section 23(1). So far as the merit of charging of notional interest on deposit over and above the rent received is concerned, we note that this issue is squarely covered by the judgment of Hon'ble Jurisdictional High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has not been disputed either by the Assessing Officer or by the CIT (Appeals). After perusing the decision of the ITAT Mumbai Bench in the case of Reclamation Realty India (P.) Ltd. ( supra ), it is seen that the Bench after considering the catena of case laws and after analyzing the provisions of section 23(1)(a) and 23(1)(b) and also the judgment of Hon'ble High Court in the case of J.K. Investors (Bombay) Ltd. ( supra ) and another judgment in the case of M.V. Sonavala v. CIT [1989] 177 ITR 246/42 Taxman 123 (Bom.) have come to the conclusion that the judgment of Third Member decision in the case of Baker Technical Services (P) Ltd. ( supra ) cannot be applied being contrary to the decision of Hon'ble Bombay High Court and the same cannot be followed. The relevant finding of the Hon'ble ITAT are being reproduced here under :- "23. As far as decisions relied upon by the learned D.R. in the case of Baker Technical Services (P) Ltd. ( supra ), we find that the same is based on the decision of the ITAT Mumbai bench in the case of ITO v. Makrupa Chemicals (P) Ltd. 108 ITD 95 (Mumbai). In the case of Makrupa Chemicals, in para-14 of the decision it has been clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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