Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
CGST - Acts + GST Rates GST Ntf. GST Forms GST - Manual GST - FAQ State GST Acts SGST Ntf. I. Tax Manual
Extracts
Home List
← Previous Next →

Income Tax Officer Versus Sri Raghu Nandan Modi And Vice-Versa

Addition on account of rent free accommodation provided to the assessee which was valued u/s. 28(iv) - Held that:- The assessee is a part-time director in the company from 01.04.2005 and he was not given any salary by POL. Admittedly the assessee was given rent free accommodation by POL in the capacity of director. From the submission of Ld. AR, we find that assessee was acting as a part-time director as well as employee in the company as evident from the meeting of Board of Directors which is p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mstances. Thus, the value of rent free accommodation determined by the AO on the rent fetched by the property in the earlier years for ₹ 96 lacs cannot applied in the case before us. In view of above, we find no infirmity in the order of ld. CIT(A). Hence the ground of appeal of the Revenue is dismissed. - ITA No. 2186-2187/Kol /2014, C.O. No. 03-04/Kol /2015 - Dated:- 2-6-2017 - Shri N. V. Vasudevan, Judicial Member And Shri Waseem Ahmed, Accountant Member By Assessee : Shri S.M. Surana A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

-11 & 2011-12 respectively. Shri Pinaki Mukherjee, Ld. Departmental Representative represented on behalf of Revenue and Shri S.M. Surana & Shri P.R. Kothari, Ld. Advocate appeared on behalf of assessee. 2. Both the appeals and CO(s) of assessee are heard together and are being disposed of by way of consolidated order for the sake of convenience. First we take up ITA No. 2186/Ko/2014 for A.Y. 10-11 of Revenue s appeal. 3. Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Ltd. (POL for short). It was observed that POL is owner of a flat having 3551.12 sq. ft. area located at 11/12 Buckley Court, Nathalal Parekh Marg, next to Electric House, Colaba, Mumbai-400005. M/s POL has assigned the task to look after the export business of it. The assessee has not drawn any salary from the company during his tenure from 01.04.2005 to 31.05.2011 as evident from the audited report of POL. However, POL has provided rent free accommodation to assessee by giving its flat as disc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ll be nil. The AO also observed that the services rendered by the assessee fall under the category of professional/vocational activities and therefore the same is taxable in the hands of the assessee u/s. 28(iv) of the Act. 5. The AO also observed that the impugned flat was rented out by POL to a company in the financial year 2002-03 on annual rental value of ₹ 96 lakh. Therefore, the AO worked out the rental value of the impugned flat for Rs. 96 lakh which was added to the total income of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

attracted in relation to the rent free accommodation provided by POL. It is because these exists employee and employer relationship between the assessee and the POL. Moreover, assessee was not engaged in any business activity as well as holding any professional qualification as envisaged under the provisions of Section 28(iv) of the Act. 8. POL has given its flat on rental basis for financial years 2001-02 & 2002-03 to its 100% holding company wherein rent of Rs. 96 lakh was received only fo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

guiding factor for determining the perquisite value in the hands of the assessee. The assessee further submitted the rental valuation as determined by Brinhan Mumbai Mahanagarpalika for the financial year 2009-10 which comes out to ₹ 1,21,500/- only. Similarly, the promoters of the building namely, Balkrishna Developer Pvt. Ltd. valued the apartment for ₹ 2,74,364/- under the municipal valuation for the purpose of municipal tax. The assessee also submitted that on the maximum side a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

value at which the property might be expected to let on year-to-year basis. The Ld. CIT(A) after considering the submissions of the assessee has deleted the addition in part made by AO by observing as under:- After going through the facts and circumstances of the case, I find merit in the arguments of the appellant that being close relationship between the holding and subsidiary company and the annual rent was decided in consideration of so many other factors to give benefit to the subsidiary co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nual letting out value of the impugned flat, which is as follows: The maximum residential letting rate in Brihanmumbai Mahanagarpalika area for A.Y 2010-11 for per 10 sq. Mtrs. was ₹ 2,670/- per month, therefore, 2,670/- x 12/107.64x 3551 sq.fts. + 20% of the prescribed letting rate towards car parking + 10% of the letting rate being 11th floor = ₹ 13,74,081/- (in round figure it is ₹ 14,00,000/-) and accordingly the balance addition is directed to be deleted. However, so far t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. In the present case, the surrounding circumstances and facts clearly show that the appellant adopted a colourable device for taking the rent free accommodation under rule 3 of the IT Rules for calculating valuation of the rent free accommodation which is otherwise not applicable in this case. In view of the above, the AO had correctly charged th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ommodation provided by POL to the assessee. The assessee is a part-time director in the company from 01.04.2005 and he was not given any salary by POL. Admittedly the assessee was given rent free accommodation by POL in the capacity of director. From the submission of Ld. AR, we find that assessee was acting as a part-time director as well as employee in the company as evident from the meeting of Board of Directors which is placed on pages 7 and 8 of the paper book filed along with CO No.3/Kol/2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

inafter referred to as employee) or to any member of his household by reasons of his employment shall be determined in accordance with the following sub-rules, namely:- (1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below: TABLE I Sl. No Circumstances Where accommodation is unfurnished (1) (2) (3) (1) (2) Where the accommodation is provided by any other employer and- (a) Where the accommodation i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assessee is owned by M/s POL, therefore 15% of the salary shall be taken as perquisites in the hands of the assessee. However we find that admittedly the assessee is not withdrawing any salary from the POL then in such situation it cannot be determined as per rule 3 of income tax rule. Thus it is clear that the provisions of section 17(2) are very much applicable to the instant facts of the case but the same cannot be determined under rule 3 of IT rules for the reasons as discussed above. Simi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,- (i) ... ... (ii) ... ... (i) ... .. [(iv) the value of any benefit or perquisite, whether convertible to money or not, arising from business or the exercise of a profession;] 10.1 On perusal of the above provision of Sec. 28(iv) of the Act it is revealed that a value of benefit/perquisites can be brought to tax if it is arise from the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s as under:- Definitions 2. In this Act, unless the context otherwise requires,- (24) income includes- (i)…. (ii)…. (iii) (iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payee by the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s not drawing any salary from POL. Similarly, the aforesaid income cannot be taxed under the provision of Sec. 28(iv) of the Act on the ground that the condition as laid down in the said Section has not been met to the instant rent free accommodation. Now, the residual section where the perquisites value can be determined for the Sec. 23(1) of the Act for the purpose of taxation of rent free accommodation and relevant provision of Sec. 23(1) reads as under:- [Annual value how determined. 23.(1) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(a) or clause (b) of section 23(1) of the Act. From the reading of the above provision, it is clear that that the clause (b) is applicable where the property is actually let out. In the case before us the property is not let out then applicability of clause (b) is ruled out. Now the clause (a) remains there to be applied for the determination of the annual value of the property which requires to determine the same as per municipal guidelines. In holding so we rely in the order of Hon ble ITAT in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(Amendment) Act, 1975 w.e.f. 1.4.1976, Section 23(1)(b) was introduced, whereby it was provided that if the actual rent received by an assessee is in excess of the sum for which, the property might reasonably be expected to let from year to year, annual value will be the rent received. While explaining the aforesaid amendment, CBDT in Circular 204 dated 24.7.1976 in paragraph 9 has stated as follows :- "Hitherto, the annual value of house property, chargeable to income tax under the head & .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property". 18. From the aforesaid Circular, it is clear that the law prior to introduction of section 23(l)(b) was that annual value was equal to Municipal Valuation of the property. The above circular gives an indication as to how the expression "the sum for which, the property might reasonably be expected to let from year to year" used in section 23(l)(a) hast to be inte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot;. 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 legislation, 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. ClT, 131ITR 435 (Sc), the question arose in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of 'annual value' in sub-section (1) of section 23 of the I.T. Act, 1961, because these definitions are in identical terms and it was impossible to distinguish the definition of 'annual value' in sub-section (1) of section 23 of the IT. Act, 1961, from the definition of that term in the Delhi Municipal Corporation Act, 1957 and the Punjab Municipal Act, 1911. We must, therefore, hold on an identical line of reasoning, that even if the standard rent of a building has not been fixe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not the actual rent received by the landlord from the tenant. This interpretation which we are placing on the language of sub-section (1) of Sec.23 of the IT Act,1961, may be regarded as having received legislative approval, for, we find that Sec.6 of the Taxation Laws (Amendment) Act, 1975 subsection (1) has been amended and it has now been made clear by the introduction of clause(b) in that sub-section that where the property is let and the annual rent received or receivable by the owner in re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ti Bansali, 141ITR 419 had to deal with a case of a property in Mumbai, where the dispute was with regard to determination of its annual value u/s. 23 of the Act. Hon'ble Calcutta High Court after making reference the decision of Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor (supra) and Mrs. Sheila Kaushish (supra) held as follows :- "Therefore, in case where the actual rent received is higher than that for which the property might reasonably be expected to let from y .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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". Thu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eceived or on the basis of standard rent. The question is whether the annual value should be taken at the amount which is actual compensation received or at the amount fixed as municipal rateable value. Obviously, Municipal rateable value cannot be equated to standard rent. In this context, it may be desirable to refer to the Calcutta High Court's decision in the case of CIT Vs. Prabhabati Bansali, (1983) 1411TR 419. One of the questions involved in that case was whether the Tribunal was jus .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, which we think, has taken the right view, we answer the questions in the negative and against the department with a direction that the annual value of different properties will now be determined by the Tribunal in accordance with the directions set out above. No order as to costs". 22. The Hon'ble Bombay High Court in the case of Smitaben N. Ambani Vs. CWT 323 ITR 104 (Born) in the context of Rule IBB to the Wealth Tax Rules, which uses the same expression "the sum for which the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

9;ble Bombay High Court considers the decisions of Hon'ble Calcutta High Court which in turn has considered the law laid down 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 determine .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r 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 ITO 95 (Mumbai). In the case of Makrupa Chemicals, in para-14 of the decision it has been clearly held that rateable value, if correctly determined under the municipal laws can be taken as ALV u/s.23(1}(a} of the Act and in this regard the decision of the Hon'ble S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at the rateable value under the municipal law has to be adopted as annual value u/s.23(1)(a) of the Act and therefore the decision in the case of Makrupa Chemicals (supra) to the contrary cannot be followed. Further In para-13 of its decision in the case of Makrupa Chemicals, the Tribunal has very categorically held that if ratable value is less than the standard rent (where the property is subject to rent control laws) then only standard rent has to be taken. In coming to the above conclusion t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e security deposit of ₹ 1,62,36,000/- was taken by the owner. It was this factor which weighed in the mind of the Tribunal as is evident from the observations in para-8 of its order where they have held that any fair judicial administration would not allow such things to happen. The decision in the case of Tivoli Investment & Trading Co. (P) Ltd. (supra) is again distinguishable because it was a case where there was no rent and only a huge interest free security deposit was taken by th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he 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.lnvestors (Bombay) Ltd. (supra). We hold accordingly. The appeal of the revenue is dismissed. From the above, it is amply clear that the perquisites of rent free accommodation can be determined only in pursuance of the provisions of section 23(1)(a) of the Act which require .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version