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2017 (3) TMI 265 - ITAT MUMBAI

2017 (3) TMI 265 - ITAT MUMBAI - TMI - Adding notional interest on the interest free deposit received from the tenant in order to determine annual value of the property for the purposes of section 23 - Held that:- Section 23(1)(a) of the Act relates to the manner of determination of annual value of the property for the purpose of section 22 of the Act. Section 23(1)(a) relates to the determination of the annual letting value of such property and speaks of the sum for which the property might rea .....

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een kept in fixed deposit by the assessee which has yielded interest income of ₹ 10,28,644/- and such sum is lying credited to the Profit and loss account of the assessee, therefore, the benefit derived from the deposit received from the tenant is very much part of the total income declared by the assessee. Hence, there is no scope for making any addition on account of so called notional interest on the deposit while determining the annual value of the property for the purpose of section 2 .....

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ut and, therefore, the impugned interest income has been correctly taxed as “income from other sources”. Notably interest has been earned on the fixed deposit kept with the bank and the source of such deposit is the security deposit received from the tenant. Under these circumstances, we confirm the stand of the AO that interest income is liable to be taxed as “income from other sources”. - Decided against assessee - Expenses local travel and conveyance and commission expenses - Held that:- .....

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, Accountant Member This appeal is directed against the order of the CIT(A)-5, Mumbai, dated 05.12.2011, which in turn has arisen out of the order passed by the AO u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to A.Y. 2006-07. 2. In this appeal, though the assessee has raised multiple grounds of appeal, essentially the dispute is on three issues with which we shall deal in seriatim. The appellant is a company incorporated under the provisions of the Compa .....

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e before the CIT(A) was partly allowed and not being satisfied with the order of the CIT(A), the assessee is in further appeal before us. 3. In so far as the first issue is concerned, the same relates to determination of income under the head income from house property , wherein the AO has determined income at ₹ 14,81,130/-. In this context, the relevant facts are that the appellant company leased out its premises at 801- Shaudeep, Altamount Road, Mumbai, to M/s. Deutsche Bank vide leave a .....

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24 of the Act. In response, the assessee company submitted that the annual value of the property is required to be determined in accordance with the provisions of section 23 of the Act and that the annual value is to be higher of the sum for which the property is reasonably expected to be let out from year to year or the actual rent received. The assessee asserted that the actual rent received by it was more than the rent determined by the local authorities for which property was expected to be .....

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a part of the total income declared. The AO was not satisfied with the explanation furnished by the assessee and noticed that the rent of the premises in the nearby location varied from rupees four lacs to six lacs per month and that the rental value varied depending on the amount of deposit given by the tenant. The AO inferred that the assessee had charged less rent because of the interest free deposit received from the tenant. The AO concluded that interest @10% p.a. was deemed to be embedded .....

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77; 14,81,130/-. The said action of the AO has been further affirmed by the CIT(A). As per the CIT(A), the AO was justified in invoking the provisions of section 23(1)(a) of the Act and taxing notional interest on security deposit as a part of the annual value of the property. Against the said the decision, the assessee is in further appeal before us. 4. Before us, the learned representative for the assessee has vehemently argued that the action of the AO in adopting the notional interest on the .....

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provides for consideration of notional rent while determining the gross maintainable rent in terms of Rule 5 in part B of Schedule III. It was pointed out that there is no such specific provision in section 23 of the Act and, therefore, the lower authorities are not justified in adding notional interest as a part of the annual value of the property. Further, the learned representative for the assessee pointed out that the annual letting value fixed by the municipal authorities is a good basis to .....

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dgment of Hon ble Bombay High Court in the case of CIT vs. Tip Top Typography [2014] 368 ITR 330. Even otherwise, it is made out that income earned from the deposit received from Deutsche Bank has been offered for tax and in this context it was pointed out that the assessee had earned interest income of ₹ 10,28,644/-, which is duly credited in the profit & loss account. It was therefore contended that the action of the AO in adding the notional interest in the determination of annual v .....

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ther the AO was justified in adding notional interest on the interest free deposit received from the tenant in order to determine annual value of the property for the purposes of section 23 of the Act. Section 23(1)(a) of the Act relates to the manner of determination of annual value of the property for the purpose of section 22 of the Act. Section 23(1)(a) relates to the determination of the annual letting value of such property and speaks of the sum for which the property might reasonably be e .....

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Asian Hotels Ltd. [2010] 323 ITR 490 and it has also been referred with approval by Hon ble jurisdictional High Court in the case of Tip Top Typography (supra). The following discussion by the Hon ble Bombay High Court is relevant in this context : We approve the aforesaid view of the Division Bench of this court and operative words in section 23(1)(a) of the Act are the sum for which the property might reasonably be expected to let from year to year . These words provide a specific direction to .....

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undertake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest-free security can be taken as determinative factor to arrive at a fair rent . The provisions of section 23(1)(a) do not mandate this. The Division Bench in Asian Hotels Ltd. [2010] 323 ITR 490 (Delhi), thus, rightly observed that in a taxing statute it would be unsafe for the court to go beyond the letter of the law and try to read into the provision more than what is alread .....

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0 (Delhi). [underlined for emphasis by us] 7. Applying the aforesaid parity of reasoning to the facts of the instant case, it becomes abundantly clear that the notional interest considered by the AO for the purpose of determining the annual value of the property is quite unjustified. No doubt, the AO is within his jurisdiction to formulate a belief that the actual rent received is less than the market rent of the property but he was duty bound to undertake the necessary exercise in this behalf, .....

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e circumstances, the action of the AO in disregarding the actual rent received for the purpose of determining the annual value of the property is unjustified and deserves to be set aside. 8. Another aspect which also renders the action of the AO as untenable is as follows. The Hon ble Calcutta High Court in the case of CIT v. Satya Co. Ltd. [1997] 40 CTR 569 was considering an identical situation as to whether the annual value of the property could be determined by, inter alia, considering the n .....

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s of the present case before us, it is clear that the deposit received from the tenant has been kept in fixed deposit by the assessee which has yielded interest income of ₹ 10,28,644/- and such sum is lying credited to the Profit and loss account of the assessee, therefore, the benefit derived from the deposit received from the tenant is very much part of the total income declared by the assessee. Hence, there is no scope for making any addition on account of so called notional interest on .....

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ned by the assessee. The AO noted that interest income was offered for taxation by the assessee as business income . The assessee was show caused as to why the interest income should not be taxed as income from other sources since no business activity was carried out by the assessee. Before the AO, the assessee contended that its main business was to give loans and advances and therefore interest income is to be seen as part and parcel of its business activities and, therefore, such income be ta .....

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