TMI Blog2011 (1) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) at 30% of annual value of ₹ 1,17,000/- It is not in dispute that the Municipal value of the property was ₹ 49,904.30. In terms of the provisions of section 23(1)(b) of the Income Tax Act, 1961 (the Act) the assessee adopted the actual rent received which was more than the annual value as per section 23(1)(a) of the Act. The Assessing Officer however, after making reference to the decision of the ITAT, Mumbai Bench in the case of ITO Vs. Makrupa Chemicals (P) Ltd. ITA No.2435/M/01 order dated 5/9/2006 was of the view that annual value in terms of section 23(1)(a) had to be determined by ignoring the Municipal valuation. Thereafter, the Assessing Officer determined the annual value of the assessee as follows: In this case, the assessee has given premises on rent to the company who is the holding company i.e. M/s.Benett Coleman Co. Ltd. and collecting annual rent of ₹ 1,17,000/- as against the payment of ₹ 1,95,468/- to the society as society maintenance charges which is inclusive of BMC taxes. The property is purchased for ₹ 2,15,87,370/- and the net earning per annum with reference to investment results in negative as the outgoings are more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vicinity of property of appellant and was comparable in terms of its location and other comparable factors. In the absence of any of these criteria being satisfied by the AO, adoption of annual let out value in the manner as done by the AO is not justified at all. Not only this, AO ought to have confronted this value to the assessee in the course of assessment proceedings which has not been done. It appears that AO has adopted the value of ₹ 9 lakhs per month on hearsay. Otherwise, he ought to have spelt out the detailed basis in the order of assessment which is not been done. Assessment of income tax cannot be made on hearsay. There has to be evidence on the basis of which alone decisions can be taken. In the absence of any such evidence on record, any addition to income can never be upheld. Consequently without going into the legal sanctity of which ought to be done and what not to be done, on the basis of the factual position of the manner in which AO has made the addition, it is held that the addition is not justified and is deleted. The ground of appeal is allowed. 4. Aggrieved by the order of the CIT(A) revenue has filed the present appeal before the Tribunal. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unjab Municipal Act, 1911 was Gross annual rent at which such house of building may reasonably be expected to let from year to year . The Hon'ble Supreme Court held that the annual value is always rent realizable by landlord and that actual rent is only an indicator what the landlord might reasonably expect to get from a hypothetical tenant. The Honourable Court further held that where tenancy is subject to rent control legislatation, Standard rent would be a proper measure and in any event, annual value cannot exceed such standard rent. In the case of Mrs. Sheila Kaushish Vs. CIT, 131 ITR 435 (Sc), the question arose in the context of provisions of section 23 of the I.T. Act. The Hon'ble Supreme Court applying the decision of Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor (supra) observed as follows :- Now this was a definition given on the interpretation of the definition of Annual value in the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911, for the purpose of levy of house tax, but it would be eqully applicable in interpreting the definition of annual value in sub-section (1) of section 23 of the I.T. Act, 1961, becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom year to year in respect of an income accruing subsequent to the amendment different considerations might arise. But, we are not concerned with such situation in the instant case. Therefore, in view of that position and the municipal law and in view of the decision of the Supreme Court, it appears to us that the income from house property must be computed on the basis of the sum which might reasonably be expected to let from year to year and with the annual municipal value provided such a value is not above the standard rent receivable and that would be the safest guide for this purpose and the rent actually received would not be of any relevance . 21. The Court in the aforesaid decision also relied on the provisions of section 154 of the Bombay Municipal Corporation Act, wherein the manner of determination of rateable value has been laid down. The said provisions also speak of annual rent for which, the property might reasonably be expected to let from year to year . Thus, the Court concluded that the Municipal valuation and the annual value u/s. 23(1)(a) are one of the same. The decision of Hon'ble Calcutta High Court has been followed by Hon'ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn by the Hon'ble Apex Court on the issue. It is clear from the aforesaid exposition of law that charge u/s. 22 is not on the market rent; but is on the annual value and in the case of property which is not let out, municipal value would be a proper yardstick for determining the annual value. If the property is subject to rent control laws and the fair rent determined in accordance with such law is less than the municipal valuation then only that can be substituted by the municipal value. The decision in the case of Mrs. Sheila Kaushish (supra) mentions standard rent under the Rent Control Act as one of the yardsticks. We also find from the decision of Hon'ble Calcutta High Court in the case of Smt. Prabhabati Bansali (supra) that standard rent, if it does not exceed the municipal valuation alone can be adopted in place of municipal valuation. 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 Vs. Makrupa Chemicals (P) Ltd. 108 ITD 95 (Mumbai). In the case of Makrupa Chemicals, in para-14 of the decision it has been cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning factor for applying the provisions of Sec.23(1)(a) of the Act. Since the rent received by the Assessee was more than the sum for which the property might reasonably be expected to let from year to year, the actual rent received should be the annual value of the property u/s.23(1)(b) of the Act. Notional interest on interest free security deposit/rent received in advance should not be added to the same in view of the decision of the Hon ble Bombay High Court in the case of J.K.Investors (Bombay) Ltd. (supra). We hold accordingly. The appeal of the revenue is dismissed. 6. In the light of the aforesaid decision, we are of the view that the Assessing Officer was not justified in determining the annual value under section 23(1)(a) by ignoring the Municipal valuation/ratable value adopted by the Municipal Authorities. Since, the actual rent paid by the Assessee was much more than the Municipal Valuation, the annual value had to be determined on the basis of the provisions of Sec.23(1)(b) of the Act. The claim of the assessee on the basis of the provisions of section 23(1)(b) had to be accepted. For the reasons given above, we uphold the order of the CIT(A) and dismiss the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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