TMI Blog2017 (11) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... nd as a result the assessee received ₹ 10,40,000/- as damages pertaining to that period when the licensee occupied the premises without any valid authority as per the licensee deed dated 31.5.2006 and the said damages related to the period after 31.5.2006. We find merit in the argument of AR that the said receipt is a capital receipt and not liable to tax. Thus direct the AO to exclude the amount of ₹ 10,40,000/- from the ALV. Addition made on account of notional interest @ 10% on interest free security deposits received by the assessee while computing the annual value of the residential properties u/s 23 - Held that:- As decided in assessee's own case actual rent received by the assessee far exceed the Municipal ratable value and, therefore, the annual value of the property need to be computed under section 23(1)(b) of the Income Tax Act, 1961. This Court in the case of Commissioner of Income Tax Vs. J.K. Investors (Bombay) Ltd. [2000 (6) TMI 9 - BOMBAY High Court ] has held that while computing the annual value under Section 23(1)(b) of the Income Tax Act, 1961 the notional interest on the security deposit / advance rent cannot be included in the income from hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave honoured their commitments under the agreement entered into by them. The amount of ₹ 10,40,000 received by the appellant has been claimed to be in the nature of mesne profits. The Ld. AR of the appellant has relied upon the case of Narang Overseas (supra) in his favour. However, a close look at this decision reveals that in thiscase the question of law was based in the light of the case of P.Mariappa Gounder vis CIT(1998) 232 ITR 2(SC)/[1998] 149 CTR 322 (SC). I have also gone through the case of P.Mariappa Gounder 01 Hon'ble Supreme Court. The brief facts of this case are as under :- The assessee had agreed to purchase a tile factory, vide written agreement dated 22-5-1950, When the vendor did not convey the property, as promised, the appellant filed a suit for specific performance. This suit was ultimately decreed in appeal by the Supreme Court vide judgment dated 22-4-1958. The Supreme Court also passed decree declaring that the appellant was entitled to mesne profits against the vendor. The Trial Court determined the quantum of mesne profits by its order dated 22-12-1962 relevant to the assessment year 1963-64. The amount of mesne profits determined was rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession From the above definition it becomes quite clear that the case of the appellant does not fall within the ambit of mesne profit and hence the case law relied upon by the appellant are not applicable to the facts of the case of the appellant. Therefore, in my considered view the A.O. was quite justified in holding that the so called mesne profit is nothing but rental income only and therefore the addition made by the A.O. on this around is confirmed-d and this appeal is dismissed. 5. At the time of hearing, the ld.AR submitted before us that the case of the assessee is squarely covered by the decision of Mumbai Bench of Tribunal in the case of Ms. Aloo Bejan Daver V/s ITO in ITA No.2381 and 2382/Mum/2010 (AY-2005-06 and 2006-07) dated 29.4.2011 and accordingly prayed that the same be applied to the case of the assessee and the maintenance charges which were paid by the assessee in terms of agreement between the assessee and the licensees should be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sable income in view of s. 23(1)(b). So far as the decision of the Tribunal in the case of Barodawala Properties Ltd. (supra) is concerned, we find that the Tribunal in subsequent judgments have held that while calculating annual value of the let out property, maintenance charges paid to the society by the assessee is admissible deduction from the annual let out value u/s 23(1)(b). In view of the series of decisions relied on by the ld. counsel for the assessee supporting the deductibility of society charges from the gross rent for the purpose of determining the annual let out value u/s 23(1)(b), we hold that the assessee is entitled to deduction of society charges amounting to ₹ 1,26,000/- from the rent so received for the purpose of determining ALV u/s 23(1)(b) of the I.T. Act. The ground raised by the assessee is accordingly allowed. 9. Since the grounds raised by the assessee in ITA No. 2382/M/2020 are identical to the grounds raised in ITA No. 2381/M/2010 for A.Y. 2005-06, therefore, following the same ratio, we hold that the assessee is entitled to deduction of society charges of ₹ 1,32,300/- for A.Y. 2006-07 for the purpose of determining ALV. The facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside and direct the AO be directed to exclude the amount of ₹ 10,40,000/- while calculating the ALV for the purpose of determining income under the head income from house property as was not taxable being capital receipt. 11. On the other hand, the ld.DR relied on the orders of authorities below. 12. We have heard both the parties on the issue and carefully perused the material placed before us including the orders relied upon by the assessee. The undisputed facts of the case that the licensee did not vacate the flats as per the terms of leave and license agreement and as a result the assessee received ₹ 10,40,000/- as damages pertaining to that period when the licensee occupied the premises without any valid authority as per the licensee deed dated 31.5.2006 and the said damages related to the period after 31.5.2006. We find merit in the argument of AR that the said receipt is a capital receipt and not liable to tax as the issue is directly covered in favour of the assessee by the following decisions of the jurisdictional high court and coordinate benches as relied and referred to by the ld AR. The relevant portion of the judgement t is reproduced below : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns on 25th June, 2009, no steps have been taken by the Revenue to have the appeal restored, is evidence enough of the Revenue having accepted the decision of the Special Bench of the Tribunal in Narang Overseas (P.) Ltd. (supra). Thus, the question as framed in the present facts does not give rise to any substantial question of law. 12. Accordingly, Appeal is dismissed. No order as to costs . 13. The facts of the case in hand are materially same to the facts of the cases discussed as above. We, therefore, respectfully following the ratio laid down in the aforesaid cases set aside the order of the ld. CIT(A) and direct the AO to exclude the amount of ₹ 10,40,000/- from the ALV. Accordingly, the appeal of the assessee sands allowed on this ground. 14. Resultantly, the appeal of the assessee is allowed. I.T.A. No.1772/Mum/2012 15. The grounds of appeal raised by the revenue are as under : (1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of notional interest @ 10% on interest free security deposits received by the assessee while computing the annual value of the reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of J.K. Investors (Bombay) Ltd.., 112 Taxman 107 and held that notional interest cannot be added to annual rent receipt. 11. Learned DR relied on the decision of the Third Member in the case of ITO vs. Baker Technical Services (P) Ltd., 125 ITD 1 (TM). D Bench of the Tribunal in ITA No.1411/Mum/2007 in the case of DCIT 10(1) vs. Reclamation Realty India Pvt. Ltd., after considering the Third Member decision relied upon by learned DR held as follows:- 25. For the reasons given above, we hold that the annual value (also referred to as municipal valuation / rateable value) adopted by the municipal authorities in respect of the property of ₹ 27,50,835 should be the determining 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 e 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.V. Investor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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