TMI Blog1999 (7) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... q. ft. the consideration was ₹ 10,90,63,750. The total purchase price of the property including stamp papers, stamp duty, legal fees, etc., was ₹ 12,03,69,675. The said premises was let out to M/s Raymond Woollen Mills Ltd., a sister concern, with effect from 1-10-1991. Though the possession of the property was taken over by the said concern on 1-10-1991, the written agreement was executed on 17th June 1992. The agreement was initially for a period of three years with retrospective effect from 1-10-1991 on a monthly rent of ₹ 5,13,260. The period of lease was extendable by mutual consent for two further periods of three years each upon such terms and conditions as may be decided. The lessor agreed to bear the property taxes and maintenance charges of the property while the lessee undertook to meet the expenses for electricity consumed by them. The lessee agreed to deposit with the lessor an amount of ₹ 15,39,780 as a security deposit for the due performances of the lessees. The lessors were entitled to recoup any loss etc., caused by damage to property etc., from such deposit. By another agreement entered into on the same date, the assessee company had agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business practice to take interest free deposits from the lessee to secure proper fulfilment of the terms and conditions of the lease and that the notional interest was not assessable as income from house property under section 23. The Assessing Officer calculated the notional interest at the rate of 21.5 per cent, i.e., the rate at which the assessee had borrowed funds and deduction claimed out of the rental income. 4. The assessee appealed to the CIT(A) and contended that there was no justification for assessing the notional interest in respect of the security deposit received from the lessee as part of the annual rent received or receivable. Reliance was placed on the decision of the Calcutta High Court in the case of CIT v. Satya Co. Ltd. (1994) 75 Taxman 193. In this case their Lordships of the Calcutta High Court held that the notional interest on the deposit made by the tenant cannot be assessed as part of the rent under section 22 or 23 of the Act. The learned CIT(A) has expressed the view that the real issue in this case is not as to what is the annual value of the property under section 23(1)(a) but what constitutes rent for the purpose of section 23(1)(b). Relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for including the notional interest as part of rent for the purposes of section 23(1)(b). It was accordingly contended that the addition made by the revenue authorities may be deleted. Reliance was placed on the decision of the Bombay High Court in the case of CWT v. State Bank of India (1995) 213 ITR 1 in support of the contention that the Wealth-tax provisions cannot be applied to the income-tax proceedings. 6. The learned Departmental Representative on the other hand contended that the decision of the Calcutta High Court is not binding upon the authorities working outside its territorial jurisdiction. In this connection he relied upon the decision of the Bombay High Court in the case of Thana Electricity Supply Ltd. (supra) and that of the Delhi High Court in the case of Taylor Instrument Co. (India) Ltd. v. CIT (1998) 232 ITR 771/ 99 Taxman 155. It was contended that the decision of the Tribunal in the case of Satya Co. Ltd. (supra) may not be applicable in this case as one is not sure as to whether the provisions of Rent Control Act are attracted in that case. It was further contended that the word rent is not defined under the Act. Referring to provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite value of the property. 7. In counter reply the learned counsel for the assessee pointed out that wherever the Legislature wanted they have specifically included the notional interest and the benefit received in kind in the definition of rent. Our attention was invited to section 2(1A) defining agricultural income. The Legislature has specifically included the rent received in kind also in the definition of income. Similarly, under section 27(3)(1a) the part performance as per section 53A of the Transfer of Property Act is considered to be the transfer of property for purposes of assessment of annual value. Under the Wealth-tax Act, specific provision has been incorporated for taking into account the notional interest on security deposit. Under the Income-tax Act, the specific omission justifies the inference that the Legislature never intended to include the notional interest in the definition of the interest. It was accordingly contended that the appeal of the assessee may be allowed. 8. We have given our careful consideration to the rival contentions. Since the dispute relates to determination of annual letting value, it will be useful to reproduce section 23 of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by a tenant to an owner or landlord for the use of the land or building (The New Oxford Dictionary). Section 105 of the Transfer of the Property Act defines the term lease and lease rent as under : - A lease of immovable property is a transfer of a right to enjoy such property made for a certain time express or implied or in perpetuity in consideration of a price paid or promised or of money, a share of crops, service, or any other thing of value to be rendered periodically or on specified occasions to the transferor by the transferee who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium and the money, share, service or the other thing to be so rendered is called the rent. 10. In the case of State of Punjab v. British India Corpn. 2 SCR 114, their Lordships of the Supreme Court held that any payment by the lessee as part of the consideration of the lease, is rent. When a lessee provides the tax collection charges in addition to rent such charges have been held to be really part of the rent. So also a stipulation to pay taxes payable by the lessor to form part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it is permissible to take into consideration the factors such as actual rent received in respect of other properties in the same vicinity. It may also be permissible to take into account the actual rent paid by the lessee and the notional value of the security deposit paid by the lessee to the lessor (that is the cost to the lessee) and other surrounding circumstances. But the same is not true when section 23(1)(b) is applied. Section 23(1)(b) refers to the actual rent received or receivable. The contention on behalf of the revenue that the rent received or receivable may include anything received in kind also as provided under section 105 of the Transfer of the Property Act, may be acceptable. There is no dispute about the actual rent received. There is also no dispute about the fact that the refundable deposit has been received by the lessor. Since the amount of deposit is refundable, it is nobody';s case that the security deposit as such is to be treated as rent received or receivable. What is sought to be assessed is the benefit that is likely to be derived by the assessee by utilisation of the deposit during the period of the lease. It cannot be denied that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The section refers to the rent received or receivable. It does not permit adoption of any notional value on the basis of any benefit that may accrue to the assessee in future. If assessment of the income accrued in future is allowed to be assessed under section 23(1)(b) it will result to double taxation. On the one hand the estimated value will be assessed under section 23(1)(b) and on the other hand the income accrued by utilisation of the deposit will also be separately assessed in the year of accrual. The intention of the legislature is not to tax the receipt twice - one at the time of receipt of the deposit and one at the time of actual accrual. In the case of K.P. Varghese v. ITO (1981) 131 ITR 597/ 7 Taxman 13their Lordships of the Supreme Court held that statutes must be so construed, it possible so that absurdity and mischief may be avoided. It is also well-settled principle of law that the provisions of the Act must be construed in a harmonious manner. 16. As already explained treating the notional value of the security deposit as rent received or receivable gives rise to absurdity - gives rise to double taxation and therefore such an interpretation is to be avoided. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Electricity Supply Ltd. (supra) and also that of the Delhi High Court in the case of Taylor Instrument Co. (India) Ltd. (supra) in support of the finding of the CIT(A) that the decision of the High Court outside its territorial jurisdiction is not binding upon the authorities. Well, in view of the decision of the Bombay High Court in the case of Thana Electricity Supply Ltd. (supra) the proposition of law that the decision of the High Court is binding on the subordinate Courts and authorities under its superintendence throughout the territories in relation to which exercises jurisdiction, therefore, we cannot find fault with the CIT(A) in not following the decision of the Calcutta High Court in the case of Satya Co. Ltd. (supra). However, there are two decisions of the Tribunal in the case of Birla International Ltd. (supra) and Super Leasing Ltd. (supra) where the issue has been decided in favour of the assessee. These decisions have not been considered by the learned CIT(A). The decision relied upon by the CIT(A) is an earlier decision and as held by the Bombay High Court in the case of Thana Electricity Supply Ltd. (supra) when there are two different decisions of the same Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be applicable for determination of the annual letting value under section 23(1)(a) in respect of such properties where the Rent Control Act is not applicable. In the present case, as already clarified, the issue is somewhat different. 23. Another decision cited on behalf of the revenue is the decision of the Bombay High Court in the case of Shri Ashraf-Ur-Rehman Azimullah (supra). In this case the issue before their Lordships of the Bombay High Court was the assessment of perquisite value in respect of the accommodation provided to the employee Director. The Assessing Officer had worked out the fair rental value of the flat provided to the Director at ₹ 3,000 per month. The perquisite value of the flat was assessed at ₹ 25,000. The Director claimed that he had given an interest free deposit of ₹ 1,36,000 to the company and therefore in assessing the benefit derived by him this factor should also be taken into consideration. Their Lordships of the Bombay High Court accepted the contention on behalf of the Director and it was held that that the interest foregone on the deposit had to be taken into consideration in computing the perquisite value of the fla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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