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TMI Blog2015 (1) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... nical Services (P) Ltd. vs ITO 9(1)(2) Mumbai 125 ITD 1 (MUM) which is in favour of Revenue. 2. The only issue arises for our consideration and adjudication is regarding whether the CIT(A) has erred in deleting the addition made by Assessing Officer in the annual letting value of the property u/s 23(1)(a) of the Income Tax Act on account of notional interest on interest free deposits received by the assessee. The assessee is having 66.67% shares in the flat no. 213, Sunita Ridge Road, Mumbai - 6. The said property has been let out to Bank of Tokyo Mitsubishi Ltd. since 1987 as per the leave and lease agreement executed between the parties from time to time. The present rent at which the property is let out to M/s Bank of Tokyo is Rs. 95,000/- per month. The assessee also received interest free deposit at Rs. 2.25 crores. The Assessing Officer noted that initially the interest free deposit was received by the assessee at Rs. 3.25 crore in the year 1996 and subsequently it was reduced to 2.25 crore in the year 1999. Thus the Assessing Officer held that the deposit was linked with the rentals of the property and accordingly made the addition by adopting 12% interest on the interest f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. For the purpose of computation of annual value of the property, the procedure is stipulated u/s 23(1) of the Income Tax Act. As per the prescribed procedure, 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 as per clause (a) of sub-section 1 and then if the property is let out, compare the same with the annual/actual rent received or receivable. Therefore, the reasonable rent expected to be fetched by the property by letting out year to year has to be determined as per section 23(1)(a) and in the cases where the property is actually let out then compared the same with the reasonable expected rent to be fetched as determined in clause (a) of this section. If the reasonable expected rent is found to be more than the annual rent received or receivable by the owner then the reasonable rent expected from the letting out the property from year to year determined under clause (a) to this section would be the annual value for the purpose of section 22 of the Act. To determine the reasonable rent to be fetched by the property, the Assessing Officer has to conduct the proper enquiry and ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a analysis. In that regard, transactions of identical or similar nature can be ascertained by obtaining the requisite details. However, there also the Assessing Officer must safeguard against adopting the rate stated therein straightway. He must find out as to whether the property which has been let out or given on leave and license basis is of a similar nature, namely, commercial or residential. He should also satisfy himself as to whether the rate obtained by him from the deals and transactions and documents in relation thereto can be applied or whether a departure therefrom can be made, for example, because of the area, the measurement, the location, the use to which the property has been put, the access thereto and the special advantages or benefits. It is possible that in a high rise building because of special advantages and benefits an office or a block on the upper floor may fetch higher returns or vice versa. Therefore, there is no magic formula and everything depends upon the facts and circumstances in each case. However, we emphasize that before the Assessing Officer determines the rate by the above exercise or similar permissible process he is bound to disclose the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer ought to be aware of several aspects and matters involved in such transactions. It is not necessary that if the license is for three years that it will operative and continuing till the end. There are terms and conditions on which the leave and license agreement is executed by parties. These terms and conditions are willingly accepted. They enable the license to be determined even before the stated period expires. Equally, the licensee can opt out of the deal. A leave and license does not create any interest in the property. Therefore, it is not as if the security deposit being made, it will be necessarily refundable after the third year and not otherwise. Everything depends upon the facts and circumstances in each case and the nature of the deal or transaction. These are not matters which abide by any fixed formula and which can be universally applied. Today, it may be commercially unviable to enter into a lease and, therefore, this mode of inducting a 'third party' in the premises is adopted. This may not be the trend tomorrow, therefore, we do not wish to conclude the matter by evolving any rigid test. 52. We have also noted the submissions of Shri Ahuja ..... X X X X Extracts X X X X X X X X Extracts X X X X
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