TMI Blog2009 (7) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... rns of income had disclosed annual letting value of the property on the basis of actual rent received. The assessee was asked to explain the discrepancy in the monthly rental of the property. AO noticed that the Municipal valuation of the property was ₹ 38,860 only per annum and since the actual rent received was more than the Municipal valuation, the annual value of the property has been adopted on the basis of actual rent received u/s 23(1)(a). AO adopted the annual letting value of the property on the basis of rent received by the assessee for the four months in the previous year relevent to assessment year 2000-01. For the subsequent years also the same annual letting value of the property has been adopted by the AO. The CIT(A), relying upon the decision of the Hon ble Bombay High Court in the case of CIT v. J.K. Investors (Bombay) Ltd.[ 1999 (7) TMI 675 - ITAT MUMBAI] , held that notional interest on the interest free deposit was not to be taken into account in working out the annual letting value of the property insofar as the Municipal valuation of the property was less than the actual rent received. He accordingly accepted the annual value of the property as dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge, has received interest free deposits from the tenants. As per the decision of the Bombay Bench of the Tribunal in the case of J.K. Investors (Bombay) Ltd.[ 1999 (7) TMI 675 - ITAT MUMBAI] , the benefit derived by the assessee from the interest free deposit could be taken into consideration for determination of fair rental value u/s 23(1)(a). In my considered view, the benefit derived by the assessee from the interest free deposit could not be more than the lending rate at which the deposits were available in the market at the particular point of time. Even if that is taken into account, the fair rental value of the property does not work out to the amount determined by the AO and confirmed by the ld AM. Therefore, partly agree with the ld. AM that the annual letting value in this case cannot be limited to standard rent but I do not agree with him that the fair rent adopted by the AO is justified. I partly agree with the ld JM that the matter has got to go back to the AO instead of adopting the value determined by the AO. I hold accordingly. Since this case is peculiar insofar as I have partly agreed with ld AM and partly with ld JM, I would like to give the following opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Value at ₹ 13,50,000. The ld. CIT(A) confirmed the action of the Assessing Officer. However, on second appeal before the Tribunal, the Tribunal directed the Assessing Officer to compute the Annual Letting Value on the basis of standard rent or Municipal Rateable Value and actual rent received whichever is higher. While directing so, reliance was placed by the Tribunal in the case of Hon ble Delhi High Court in the case of John Tinson Co. (P.) Ltd. v. CIT [2006] 157 Taxman 410. It was further submitted that during these years the ld. CIT(A) has directed the Assessing Officer to take the actual rent received because the same is higher then the Municipal Rateable Value which is at ₹ 38,860 as certified by Narang Menor Owners Association. Copy of the said certificate was filed before the ld. CIT(A). Attention of the Bench was drawn on relevant portions of the order of the Tribunal as well as on the order of the ld. CIT(A). 4.2 On the other hand, the ld. DR placed reliance on the order of the Assessing Officer. 5. After considering the submissions and perusing the material on record, we find that on identical facts, the Assessing Officer disallowed the claim of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual rent received by the assessee to adopt the actual rent as the annual letting value of the property and compute the income accordingly. 5.2 The facts are identical herein the appeals before us. A query was raised by one of us whether the standard rent is applicable or not in the area where the property of the assessee is situated. The ld. counsel of the assessee has stated that the standard rent is applicable and it was submitted that this can be verified. It was further submitted that in view of the rule of consistency the decision of the Tribunal has to be followed in these cases. It was also submitted that the facts in the present case and facts before the Hon ble Delhi High Court are similar. The Tribunal has followed the decision of the Hon ble Delhi High Court, therefore, the decision of the Tribunal in the case of the assessee itself taken for assessment year 2001-02 is correct and the same has to be followed. 6. After considering these submissions, we are of the view that in view of consistency, the order of the Tribunal in the case of assessee itself has to be followed. We further found support from the order of the Coordinate Bench of the Tribunal at Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the annual value. 2. The term annual value of a property has been defined in section 23 of the Income-tax Act. The provisions of section 23(1) as originally enacted were as under : 23(1) For the purpose of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. 2.1 The aforesaid provisions were amended by the Finance Act, 1975 with effect from 1-4-1976. The amended provisions are as under : 23(1) For the purpose of section 22, the annual value of any property shall be deemed to be as under : (a)the sum for which the property might reasonably be expected to let from year to year. (b)where the property is let out and annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable. 2.2 In case, the property is covered by the Rent Control Act, it cannot be let for a rent more than the standard rent fixed under the Act. Hon ble Supreme Court in case of Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 4351, therefore held that in case of properties covered under the Rent Control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs received by the assessee had been utilised for giving interest free loans to related persons/concerns who were incurring losses and, admittedly, recovery of even the principal amount from these persons was doubtful. The assessee thus did not earn any income from the interest free deposit. The Assessing Officer therefore rejected the explanation and computed the annual value of the property on the basis of monthly rent of ₹ 1,12,500 received in the first four months of the year and assessed the house property income accordingly for assessment year 2000-01. In subsequent years also, the same annual value had been adopted. 5. In appeal, assessee submitted before CIT(A) that the notional value of interest on the interest free deposits received by the assessee could not be considered as part of annual value or the actual rent received, as held by Hon ble jurisdictional High Court in case of CIT v. J.K. Investors (Bombay) Ltd. [2001] 248 ITR 7232 (Bom.), CIT(A) agreed that the case of the assessee was covered by the judgment of the High Court in case of J.K. Investors ( Bombay) Ltd. (supra) and accordingly deleted the addition made by the Assessing Officer on account of annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and that the standard rent was synonymous to the sum, for which the property might reasonably be expected to let from year to year . The High Court also observed that municipal valuation was inter-changeable with the standard rent. It is pertinent to point out that the judgment in case of Shiela Kaushish (supra) related to a property covered under the Rent Control Act and therefore the Hon ble Supreme Court in that case held that the fair rent would be the standard rent as the property could not be reasonably expected to get more rent than the standard rent fixed under the Rent Control Act. The Supreme Court also held that in case the standard rent had not been fixed under the Rent Control Act, the standard rent determinable under the said Act would be the fair rent. This was followed by the Delhi High Court in case of John Tinson Co. (P.) Ltd. (supra) in which the High Court observed that the Assessing Officer must be guided by the principles and methodologies laid down in rent laws. It is thus clear from the foregoing discussion that the judgment by the High Court had been rendered in the context of property covered by the Rent Control Act. It appears Tribunal in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r considerations may take it out of the bounds of reasonableness. 8.3 In case of Motichand Hirachand v. Bombay Municipal Corpn. AIR 1968 SC 441, Hon ble Supreme Court had referred to various factors which can be taken into account in arriving at the annual value. Relevant observations are reproduced below :- It is well recognised principle in rating that both gross value and the net annual value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits carried from the property or to the cost of construction. 8.4 The Hon ble High Court of Patna in case of Kashi Prasad Kataruka v. CIT [1975] 101 ITR 810 had held that municipal valuation could be reduced or enhanced only on the basis of material on record to arrive at a reasonable annual value. Relevant observations are reproduced below :- Taking into consideration the test to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years had been let out to concerns falling under the exempted category. Fair rent in this case, in view of the discussion in the preceding paras, will not be limited to the standard rent. Fair rent under section 23(1)(a) in this case will have to be determined after considering a comparable cases if available or other relevant factors and after taking into consideration the factors that inflate or deflate the rent. 10. In this case, in the first four months of the assessment year 2000-01, the property had been let out at a monthly rent of ₹ 1,12,500 but suddenly thereafter from 15-10-1999 the property was let out to another tenant on a monthly rent of only ₹ 10,000 per month after accepting huge interest free deposits. Normally, there is upward revision of rent when premises fall vacant, but in this case there is downward fall by over 90 per cent. There is no material produced by the assessee to show that the rental value of the property had declined so steeply in the market during the later part of the year. The assessee rather explained that the high rent in part of the year was due to the fact that the tenant had not given interest free deposit. In other words, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t before the High Court. The observation of the CIT(A) that, in view of the said judgment, notional interest on FDR cannot be taken as a part of annual value is therefore not correct. The Assessing Officer in this case has determined the annual value under section 23(1)(a) on the basis of rent received in the assessee s own case in the earlier part of the year. He has also made out a clear case of a colourable device. CIT(A) failed to consider these aspects and gave relief after misquoting the judgment of High Court (supra). The order of the CIT(A) therefore cannot be sustained. 11. There is, however, another aspect of the issue which is required to be dealt with before concluding the matter. This is regarding the decision of the Tribunal in case of the assessee in assessment year 2001-02 in which the Tribunal directed the Assessing Officer to determine the annual value of the property on the basis of the standard rent fixed under the Rent Control Act. The issue is whether the decision of the Tribunal will be binding on the Tribunal in the other years which are under consideration in this appeal. No doubt, the decision of the Coordinate Bench on an issue if taken after consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reover, it may not be possible for the revenue authorities to determine standard rent as directed by the Tribunal if the property is not covered by the Rent Control Act. Under these circumstances, in my view, the subsequent Bench can deviate from the decision of the Tribunal in assessment year 2001-02. 12. In view of the foregoing discussion and for the reasons given earlier, the order of CIT(A) is set aside and the decision of the Assessing Officer determining the annual value is upheld. 13. In the result, all the appeals of the revenue are allowed. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 In Appeal Nos. 5262 to 5264/Mum./06 for assessment years 2000-01, 2002-03 and 2003-04 in the case of M/s. Baker Technical Services (P.) Ltd. While adjudicating these appeals, both the members have expressed their independent views. We, therefore, make a reference to the Hon ble President of the Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961, for an appointment of a Third Member or to pass necessary order to adjudicate the following questions of law on a point of difference :- (i)Whether on the facts and circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 15-10-1999, the same property was let out to Deutsche Bank AG for a monthly rent of ₹ 10,000 after taking interest free deposit of ₹ 30.00 lakhs and bank guarantee of ₹ 62.00 lakhs, in other words, for the assessment year 2000-01 the property had been let out at a monthly rent of ₹ 1,12,500 for first four months and for the last five and half months the same property had been let out at a monthly rent of ₹ 10,000 after accepting interest free deposit. The property had subsequently been let out to Bombay Stock Exchange with effect from 1-10-2001 on a monthly rent of ₹ 6,500 after accepting interest free deposit of ₹ 32.00 lakhs. The assessee was asked to explain the discrepancy in the monthly rental of the property. It was claimed that the property had been let out at a higher rent for the reason that the foreign company based in UK was not ready to give any deposit. Moreover the company was desperate to take the property on rent. The rent paid by the foreign company was not the real expected rental value of the property. The property had been let out to Deutsche Bank AG for a monthly rent of ₹ 10,000 after taking interest free dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also referred to the decision of the Hon ble Supreme Court in the case of Honda Siel Power Products Ltd. (supra) to support the view that when there is a precedent of the Coordinate Bench, the same is required to be followed. In the aforementioned decision of the Hon ble Supreme Court, it was found that the Tribunal had not considered the earlier precedent, which constituted a mistake apparent from record and was to be rectified when brought to its notice. 6. The learned Accountant Member has however not agreed with the learned Judicial Member that the earlier order of the Tribunal was to be followed on the facts and in the circumstances of this case. It has been pointed out by the learned Accountant Member that the property in question was not subject to Rent Control Act and accordingly the Municipal rateable value or the standard rent was not required to be adopted as the annual letting value of the property. According to the learned Accountant Member in this case it was necessary to determine the fair rental value of the property in accordance with the provisions of section 23(1)(a) of the Income-tax Act, 1961. According to the learned Accountant Member, since the property h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member, the assessee had reduced the rent after taking interest free deposits and that huge interest free deposits had obviously been taken to deflate the monthly rent. According to the learned Accountant Member the deposit taken are not normal security deposits, which generally is limited to a few months rent. The learned Accountant Member has agreed with the Assessing Officer that the assessee has adopted a colourable devise to reduce the rental value of the property. 8. Before me, the learned counsel for the assessee contended that he was not disputing that the property in question was not subject to Rent Control Act in the relevant assessment years. It was contended that there are several cases to support the view that even where the Rent Control Act is not applicable, the annual letting value has got to be determined on the basis of the Municipal rateable value or standard rent. Reference has been made to the decision of the Hon ble Calcutta High Court in the case of CIT v. Satya Co. Ltd. [1994] 75 Taxman 193. It was pointed out that in this case the Hon ble High Court has held that unless the actual rent received is higher, the annual letting value under section 22 read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to Rent Control Act and therefore the annual letting value could not be restricted to the standard rent. Reference was made to the decision of the Hon ble Supreme Court in the case of Director of Settlements, AP v. M.R. Apparao [2002] 4 SCC 638 to support the claim that the decision of the Coordinate Bench was not always binding. Reference was also made to the decision of the Hon ble Bombay High Court relied upon by the learned counsel for the assessee in the case of Thana Electricity Supply Ltd. (supra). The learned DR submitted before me that the property in question falls in exempt category under the Rent Control Act and therefore the value was to be determined on the basis of the fair rent. Reliance was placed on the following decisions to support the contention :- (1)Liquidator, Mahmudabad Properties Ltd. v. CIT [1972] 83 ITR 470 (Cal.). (2)State of Bombay v. Pandurang Vinayak Chaphalkar AIR 1953 SC 244 at 246. (3)Mrs. Shiela Kaushish s case (supra). (4)Amolak Ram Khosla v. CIT [1981] 131 ITR 5891 (SC). (5)CIT v. M.R. Alagappan [1987] 164 ITR 690 (Mad.). (6)Makrupa Chemicals (P.) Ltd. s case (supra). (7)Asstt. CIT v. Mayur Recreational Develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court held that in certain circumstances extraneous circumstances may deflate the fair rent. Hon ble Supreme Court has laid down the following principle of law :- It is well recognized principle in rating that both gross value and the net annual value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits carried from the property or to the cost of construction. 12. The Hon ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (supra) has also laid down the following principles of law :- 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. Reference m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or determination of the standard rent to be adopted as the annual letting value for purposes of section 23(1)(a) and assessing the annual letting value of the property in accordance with the provisions of sections 23(1)(a) and 23(1)(b). The learned Judicial Member has not doubted the correctness of the decision of the Tribunal in assessee s own case for the assessment year 2001-02 and therefore has followed the same and set aside the issue and directed the Assessing Officer to determine the standard rent. However, the learned Accountant Member has pointed out that the earlier Bench of the Tribunal has ignored the important factor in this case in deciding that the annual letting value of the property under section 23(1)(a) was to be adopted as the standard rent as per Rent Control Act. The fact that the property was not subject to Rent Control Act has not been considered by the Division Bench. The Bombay Bench of the Tribunal in the case of Makrupa Chemicals (P.) Ltd. (supra) has analysed the decisions of the Supreme Court and various High Courts and come to the conclusion that the rateable value determined under the Municipal Laws is not binding on the Assessing Officer while deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct judgments of courts of coordinate jurisdiction and of the Division Benches and of the Full Benches of his court and of the Supreme Court. Equally well settled is the position that when a Division Bench of the High Court gives a decision on a question of law, it should generally be followed by a coordinate Bench of the same High Court. If the coordinate Bench in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench. 14. The Hon ble Supreme Court in the case of Mahadeolal Kanodia v. Administrator General of West Bengal AIR 1960 SC 936, at page 941 held as under :- Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of coordinate jurisdiction in a High Court start overruling one another s decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision wrong, itself gives effect to that view, the result, would be utter confusion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on an earlier date, the Tribunal held that Mr. Hira Lal was only minor s trustee. For assessment years 1942-43, 1943-44 and 1944-45, the Tribunal went into the question in much greater detail and held that Hira Lal was a partner in his own right. Thereafter at the instance of the assessee, the following question was referred to Hon ble Bombay High Court for their opinion :- Whether in the circumstances of the case, the Tribunal was justified in law in departing from its , previous finding that Hiralal was trustee of the minor Vasantlal. A large number of authorities were cited before the Hon ble Bombay High Court. The Hon ble Bombay High Court referred to the judgment in the case of IRC v. Sleath 17 Tax Cases 149 at 163. The assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be a cogent factor in the determination of a similar point in a following year, but I cannot think that it is to be treated as an estoppel binding upon the same party for all years. Hon ble High Court found that the principle that each assessment is a different assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second Tribunal was satisfied that the decision was arrived at because of the failure to take into consideration those material facts and that if these material facts had been taken into consideration the decision would have been different, then the second Tribunal would be in the same position to revise the earlier decision as if fresh facts had been placed before it. On principle there is not much difference between fresh facts being placed before the second and the second Tribunal taking into consideration certain material facts which the first Tribunal failed to take into consideration. It may be said that even though the first Tribunal may take into consideration all the facts, still its decision may be so erroneous as to justify the subsequent Tribunal in not adhering to that decision. In a case like this, which indeed must be an extreme case, it could be said that the decision of the first Tribunal was a perverse, decision, and if the decision of the first Tribunal was either arbitrary or perverse it would justify the second Tribunal in departing from the decision arrived at by the first Tribunal. Therefore, in our opinion, an earlier decision on the same question cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Tribunal, ignoring a material fact which has affected the result of the appeal. I, therefore, agree with the learned Accountant Member, that the earlier decision of the Tribunal did not constitute a binding precedent on the facts and in the circumstances of this case. Though in my personal opinion when the earlier decision of the Coordinate Bench is doubted, it is preferable to make a Reference to the Hon ble President for constitution of the Larger Bench, yet in the light of the Third Member decision of the Tribunal in the case of Napar Drugs (P.) Ltd. (supra), the Coordinate Bench can deviate from the earlier decision in certain circumstances and since the present case falls in the exceptions, the course adopted by the learned Accountant Member cannot be said to be illegal or highly improper. 17. However, whereas I agree with the learned Accountant Member that in this case the fair rental value was to be determined by considering various factors, I do not agree with him about the quantum of the fair rent determined by the Assessing Officer, which has been approved by the learned Accountant Member. It is pertinent to mention that the Assessing Officer in this case has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. To that extent I have agreed with him. So however, I have not agreed with him that the standard rent is to be determined and adopted as annual letting value under section 23(1)(a) of the Act. The learned Accountant Member has held that the standard rent is not to be adopted. I have agreed with him to this extent. So however, I have not agreed with him that the fair rental value has to be adopted as adopted by the Assessing Officer. The issue shall be set aside and restored to Assessing Officer for determination of the fair rent to be adopted as the annual letting value. 19. The majority view can be formed on the basis of the above decision. So however, in case the Division Bench of the Tribunal considers it difficult to form the majority opinion as per the orders in this case, it is suggested that a Reference may be made to the Hon ble President for making a further Reference to a Member or Members for resolving the difference of opinion in accordance with law. ORDER Per R.K. Gupta, Judicial Member. These are three appeals by the department against the order of the CIT(A) relating to assessment years 2000-01, 2002-03 and 2003-04. 2. In these appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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