TMI Blog2018 (2) TMI 1987X X X X Extracts X X X X X X X X Extracts X X X X ..... o a query by us, that the assessee (Licensor) is the Managing Director in Asit C. Mehta Investment Intermediates Ltd (Licensee). The receipt by the assessee as interest-free security deposit from the licensee-company in which she herself is the Managing Director cannot be ignored while computing the annual letting value. Security deposit in the instant case is to circumvent real rent and the same shall fall within the ambit of Income from House Property . Taking into account the facts and circumstances of the case against the backdrop of interest rate on term deposits offered by Public Sector Banks during the relevant period, we direct the AO to estimate interest on security deposit @ 9% in place of 10% on the amount done by him and bring the resultant amount as well as the leave and license fees to tax under the head Income from House Property . - Decided partly in favour of assessee. - ITA No. 3549/MUM/2016 - - - Dated:- 9-2-2018 - Shri D.T. Garasia (Judicial Member) And Shri N.K. Pradhan (Accountant Member) Assessee by: Mr. Satish Modi, AR Revenue by: Mr. Purushottam Kumar, DR And Ms. N.Hemlatha, DR ORDER N.K. Pradhan, AM Whether the recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltant figure of ₹ 27,50,000/- to the income of the assessee. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) observed there is no dispute that the assessee received licence fees of ₹ 4,80,000/- from one of the properties i.e. in respect of Poddar Chambers. She, however, received ₹ 2,75,00,000/- as interest-free security deposit. Even though, the assessee was not the owner of the above referred property and was a tenant, the Ld. CIT(A) found that she had received ₹ 2,75,00,000/- for letting the part of asset to be used by other which amounts to sub-letting of the property. The Ld. CIT(A) further observed that the assessee has not substantiated as to whether the licence fee charged by her was as per prevailing market rate in that area/locality. The Ld. CIT(A) also did not accept the other argument of the assessee that the interest free security deposit was used for business purpose and whatever income could be earned is reflected in the sum total of business income. The reasons given by the Ld. CIT(A) are that the security deposit provided by any tenant is generally kept ready in fixed deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) Deposit Account for Poddar Premises, (viii) Details of Deposit and Analysis, (ix) Lease Agreement Papers, (x) Return of Income along with computation and Balance sheet and Profit and Loss Account for the AY 2012-13 and (xi) Order of the CIT(A) for AY 2006-07. 6. Per contra, the Ld. DRs support the order passed by the Ld. CIT(A). A copy of the decision in the case of CIT vs. Streetlite Electric Corporation (2011) 336 ITR 348(P H) is filed. 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. The assessee has declared ₹ 4,80,000/- being leave and licence fees from office premises situated in Poddar Chambers under the head Income from Other Sources . The assessee is a tenant of the said premises and has granted leave and licence rights to the licensee. The assessee had also received security deposit of ₹ 2,75,00,000/- from the licensee. We now turn to the relevant documents filed by the Ld. counsel in the P/B. The lease agreement (page 52-65 of P/B) is made on 31.03.2012 and the term of the said lease is from 1.4.2012 to 31.03.2015. So it is not relevant for the financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . has authorized Mr. Kirit H. Vora, Whole-time Director, to sign and execute the agreement to be effective from April 1, 2004. 7. Whereas both the parties are desirous of reducing the terms and conditions into writing so as to safeguard their mutual benefits and understand their obligations and responsibilities. NOW THIS AGREEMENT WITNESSTH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: ..... ..... ..... ..... ..... ..... ..... ..... 4. The License hereby granted shall effective from April 1, 2004 and shall remain in force for a period of 33 months, i.e. upto and including December 31, 2006 and will end on that day under any circumstances. 5. The Licensee shall pay to the Licensor a lump sum license fee at the rate of ₹ 40,000/- per month being the monthly fees for the use of said premises and for the furniture, fixtures, fitting and equipments in the said premises. This however, will not create any right, title or interest in the Licensed Premises in favour of the Licensee whatsoever. The Licensee shall not under any circumstances challenge the same in any Court of law as not being fair fees in respect of the Licensed Prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r increase in rent from year to year. The Assessing Officer determined the annual value of ₹ 7,80,000 by adding notional interest of ₹ 6,30,000 calculated at the rate of 18% per annum on ₹ 35 lakhs taken as security deposit, to the value of ₹ 1.50 lakhs shown by the assessee. The Commissioner (Appeals) deleted the notional interest of ₹ 6,30,000. The Tribunal affirmed the order of the Commissioner (Appeals). On further appeal, their Lordships of the Hon ble Punjab and Haryana High Court held as under: A perusal of the lease deeds and on a conjoint reading of all the documents and an analysis of factual aspect, the irresistible conclusion is that the security deposit of ₹ 35,00,000 was disproportionate to the actual contractual rent of ₹ 25,000 per month, i.e. total ₹ 12,500 per month for land and building etc. and ₹ 12,500 per month for furniture, fixture, plant and machinery etc. which amounts to 140 times of monthly rent and has no rationale with the agreed rent and the assessee had adopted a device to circumvent its taxable income. Further, rent deed did not contain any provision for increase of rent from year to year. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Leave Licence Agreement in the instant case are to be read separately or together. The Hon ble Supreme Court vide order dated 23.03.2009 in Vimal Chand Ghevarchand Jain ors. vs. Ramakant Eknath Jajoo, [Civil Appeal No. 1784 of 2009], while dealing with the construction of a commercial contract observed : A document, as is well known, must be construed in its entirety . In assessing the true nature and character of a transaction, the label which parties may ascribe to the transaction is not determinative of its character. The nature of the transaction has to be ascertained from the covenants of the contract and from the surrounding circumstances. In National Cement Mines Industries Ltd. vs. CIT [1961] 42 ITR 69, Justice J.C. Shah (as His Lordship then was) speaking for the Hon ble Supreme Court emphasized the following principles of interpretation to be adopted by the Court in construing a commercial transaction : The court has, on an appraisal of all the facts, to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments. No single test of universal applic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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