Income Tax Appellate Tribunal - Delhi
Asstt. Commissioner Of Income-Tax vs Shri Gian Chand Dhawan on 21 January, 2004
ORDER
S.K. Yadav, J.M.
1. This appeal is preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals) on a solitary ground that the Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 2.04 lakhs on account of estimated income from house property, which was let out by the assessee to a concern, in which he had substantial interest by deliberately fixing a low rent in collusive manner.
2. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record.
3. Brief facts borne out from the record are that during the course of assessment proceedings the assessing officer noticed that assessee owned the property in East of Kailash, New Delhi, which was let out to M/s. York Exports Ltd. @ Rs. 1,000/- per months. This letting was only for one and a half months. No written agreement was executed between the parties and no income from this letting was disclosed by the assessee. When the assessing officer asked the assessee as to why the ALV of this house may not be taken at market rates, it was stated on behalf of the assessee that the actual rent received by the assessee was more than the rent assessed by the Municipal Corporation of Delhi, as such, the same should be adopted. The assessing officer observed that the assessment of House tax reveals that the property was self-occupied whereas the property has to be considered a commercial property because the same has been let out to M/s. York Exports Ltd for commercial use.
The assessing officer further observed that the property was on an area of 300 sq. yds. having three bed rooms, big hall, kitchen etc. Relying upon the report of the Inspector dated 29.1.1996 that M/s. York Exports Ltd. of other companies of the group were found to be occupying the premises, the assessing Officer turn down the contentions of the assessee to be effect that it was let out only for one and a half months. He accordingly held that the property was let out for whole of the year, after rejecting the claim of vacancy period of the assessee. He further observed from the local enquiries made through the property dealers in the vicinity of the area that the minimum rate of letting out of the properties of this kind was between Rs. 20,000/- to Rs. 25,000/- per month. He, therefore, adopted the market rent at Rs. 20,000/- per month and accordingly brought to tax the amount of Rs. 2,40,000/- as income of the assessee.
4. Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) with the submissions that the annual letting value of the property cannot be increased by the assessing officer at his whims. It has to be determined as per the provisions of section 23(1) of the Income-tax Act, according to which the annual letting value of the property has to be determined on the basis of a sum for which the property might reasonably be expected to let from year to year or where the property is let and the annual rent received or receivable is in excess o the sum on which the property might reasonably be expected to let from year to year, the amount so received or receivable. The learned counsel for the assessee further contended that in the instant case actual rent received has been declared by the assessee and, therefore, the assessing officer was not justified in adopting the notional value of the property. He further contended that this issue is covered by the judgement of the apex court in the case of Sheila Kaushish reported at 131 ITR 435 (SC) and Dewan Daulat Rai Kapur reported at 122 ITR 700. He has placed some evidence on record to prove that the assessee had its registered office at D-6, Feroz Shah Road, New Delhi and it was shifted to F -106, East of Kailash, the property in question with effect from 1.8.1995 and the necessary intimation was given to the Registrar of Companies, New Delhi, and the same was published in the newspaper also. It was further contended before the Commissioner of Income-tax (Appeals) that the York Exports had mentioned its office address at D-6, Feroz Shah Road, in its return of income and the Department has also issued a notice on 30/11/1994 and 15/5/1995 at this address. It was further contended that at the time of shifting the office certain furniture were purchased and installed at its new office and in support of its contention, he has filed copies of the bills to prove that the office of York Exports was started at East of Kailash building only in February, 1995, meaning thereby till February, 1995 this property was not used by M/s. York Exports Ltd, but the assessing officer wrongly presumed that in the year 1992-93 York Exports was functioning from this premises, therefore, the assessing officer was not justified in holding that the premises was let out for whole of the year.
5. The Commissioner of Income-tax (Appeals) re-examined the issue and held that section 23 of the Act determines the annual letting value of the property. Relying upon the judgment of Sheila Kaushish (supra) and Dewan Daulat Rai Kapur (supra) the CIT (Appeals) held that the standard rent of such property be based on the valuation of the property made by the local authorities. He accordingly relied upon this valuation fixed by the Municipal Corporation of Delhi and held that the assessing officer was not justified in enhancing the annual letting value of the property. With regard to this period of letting the CIT(Appeals) accepted the claim of the assessee and held that no income from the property was taxable after allowing the vacancy allowance and deleted the addition.
6. Now the Revenue is aggrieved and has preferred an appeal to the Tribunal. Besides placing the heavy reliance upon the assessing officer's order the learned Departmental Representative invited our attention to the provisions of section 23(1) of the Income-tax Act and various judgments of the apex court in the case of Dr. Balbir Singh and Ors. v. M.C.D. reported at 152 ITR 388 (SC); Dewan Daulat Rai Kapur (supra) and Mrs. Sheila Kaushish (supra), in support of its contention that the rent received or receivable by the assessee cannot be the basis for determining the annual letting value of the property if it is lesser than the standard rent. The value taken by the Municipal authorities is not the standard rent, it is only the retable value for the purpose of House tax and the same cannot be treated a rent, which can be fetched by the property if let out in the open market. The learned Departmental Representative further contended that in these circumstances the standard rent can only be the basis to determine the ALV of the property and the standard rent can only be determined under the Delhi Rent Control Act and not as per the ratable value adopted by the Municipal authorities.
7. The learned counsel for the assessee, on the other hand, has reiterated his contentions as before the lower authorities.
8. Having considered the rival submissions and careful perusal of the record, we find that the assessing officer has worked out the ALV of the property on the basis of the rent adopted by him relying upon the local enquiries. The method adopted by the assessing officer to determine the ALV does not appear to be proper as method of determining the AIV has been specifically given in section 23(1) of the Income-tax Act. According to section 23(1) of the Income-ax Act the annual letting value of the property for the purpose of section 22 shall be deemed to be the sum for which the property might reasonably be expected to let from year to year or where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable, but in the instant case, none of the lower authorities have determined the rent, which might reasonably be expected on letting of the property from year to year. The identical issue has been examined in the case of Panipat Properties Pvt. Ltd. v. ACIT in ITA No. 5505 (Del) of 1998 in which the Tribunal has examined the issue whether the ALV should be determined on the basis of ratable value adopted by the Municipal authorities or as per standard rent determinable under the Rent Control Act. The Tribunal has considered the following judgments while dealing with the impugned issue :
1. Municipal Corporation of Delhi v. S.D.S. Bali and Anr. 45 DLT 215;
2. CIT v. Satya Co. Ltd.;
3. V.M. Salgocar & Bros. Pvt. Ltd. v. CIT 243 ITR 383;
4. Mrs. Sheila Kaushish v. CIT 131 ITR 435;
5. CIT v. Poddar Bros (P) Ltd. 240 ITR 925;
6. R.K.K.R. International (P) Ltd. v. ACIT 65 I.T.D. 512.
9. Having examined the aforesaid judgments in detail the Tribunal has arrived at the conclusion that in view of the ratio laid down by the apex court if the standard rent of building which is situated in an area to which Delhi Rent Control Act, 1958 applies has not been fixed by the Controller under section 9 of the Act and the period of limitation prescribed by section 12 for making application for fixation of standard rent having expired and it is no longer competent to the tenant to have standard rent of the building fixed, the annual value of the building according to the definition given in section 23(1) of the Income-tax Act, 1961 would be the standard rent determinable under the provisions of the Rent Control Act and not the actual rent received by the landlord or the tenant. The relevant portion of the order of the Tribunal is extracted hereunder, for the sake of reference :
"Having considered the rival submission and from a careful perusal of record, I find that admittedly, the assessee has received the interest free security deposit amounting to Rs. 28.95 lakh while leasing out its house property and out of that security deposit, an amount of Rs. 12.40 lakh was used for repayment of City Bank loan. The remaining amount of security deposit was used by the assessee. Tough the assessee has taken a plea that out of this remaining amount, a sum of Rs. 7.82 lakh was refunded to the earlier tenant and Rs. 3.3 lakh was paid for making addition to the property and balance payment is to the business creditors and others but no evidence was placed in the regard. Out attention was invited to the various judgements and the Board Circular and emphasis was made that the ALV should be determined on the basis of actual rent received or receivable and the security deposit was received to ensure the safety of the property but an issue whether the security deposit was received in order to protect its property or it was received to understate or to reduce the monthly rent of the property, is to be decided on the basis of the facts of each and every case.
I have carefully examined the judgments referred to by the assessee in the case of Municipal Corporation of Delhi v. SDS Bali and Ors. (supra) in which the Court had held that the retable value of the property shall be determined on the basis of the rent received because there is no evidence on record to indicate that security deposit was furnished solely with the view that the rent is depressed and that has compensated the landlord by earning income from the security deposit so received. Their Lordship further held that the Delhi Municipal "Corporation does not empower the Corporation is normal circumstances, to record any income accruing on this deposit so received and further to permit such frictional or actual income to be recorded as part of the rent receipt. But in the instant case, the facts are entirely different as the assessee has received substantial amount of security deposit i.e. of Rs. 28.95 lakhs which cannot be called to have been received to protect the property.
I have also carefully examined of other judgments of the Hon'ble Supreme Court and various High Courts. In all these judgments, it has been held that the ALV should be determined on the basis of the standard rent determined or determinable in accordance with the provisions laid down in the Rent Act. The reasons behind this analogy is that no landlord can recover more rent than the standard rent fixed under the Rent Control Act. In the case of Dr. Balbir Singh and Ors. v. MCD, the apex court had examined its earlier judgment rendered in the case of Divan Daulat Rai Kapoor 122 ITR 700 (SC) and held that under the provisions of DMC Act, 1957, the criteria for determining the rateable value of building is the normal rent at which such building might reasonably be expected to be let from year to year less certain deductions. The word "reasonably" is very important. What the owner might reasonably expect to get from hypothetical tenant if the building were let from year to year affords statutory yardstick for determining the rateable value. What is reasonable is a question of fact and it depends upon the facts and circumstances of a given situation. Ordinarily, the bargain between the willing lessor and a willing lessee uninfluenced by army extraneous circumstances may afford a guiding test of reasonableness and in normal circumstances, the actual rent payable by a tenant to the landlord would afford reliable evidence of what the landlord may reasonably expect to get from the hypothetical tenant, unless the rent is inflated or depressed by reason of extraneous considerations such as relationship, expectations between the actual rent received by the landlord and the rent which he might reasonably expect to receive from a hypothetical tenant. But in the case of a building which is subject to the rent control legislation, this approximation may and often does get displaced, because under the rent control legislation, the landlord cannot claim to recover from the tenant anything more than the standard rent and his reasonable expectation must, therefore, be limited by the measure of the standard rent lawfully recoverable by him." This view of the apex court was repeatedly followed by various high Courts and also be Punjab & Haryana High Court in the case of Ms. Surjeet Kaur v. Municipal Corporation and Ors., 163 ITR 56. Following this view, the apex court in the case of Mrs. Sheila Kaushish v. CIT (supra) have further held that even if the standard rent of a building which is situated in an area to which Delhi Rent Control Act, 1958 applies has not been fixed by the Controller under Section 9 of the Act and the period of limitation prescribed by Section 12 for making application for fixation of standard rent having expired, it is no longer competent to the tenant to have the standard rent of the building fixed, the annual value of the building according to the definition given in section 23(1) of the I.T. act, 1961 (as it stood prior to its amendment in 1975), would be the standard rent determinable under the provisions of the Rent Control Act and not the actual rent received by the landlord from the tenant.
Turning to the case in hand, in the light of aforesaid judgments, I find that the assessee has received substantial amount of Rs. 28.95 lakh as a security deposit against leasing of property to two parties on agreed rent and this amount cannot be termed to have been received to only protect the property. The assessee must have acquired certain benefits from this interest free deposit. In this backdrop, ALV cannot be determined on the basis of the actual rent agreed between the parties. As repeatedly held by the apex court or the various High Court, the ALV should be determined on the basis of the standard rent determined or determinable under the Delhi Rent Control Act. Since the standard rent has not been determined so far under the Delhi Rent Control Act, the matter should go back to the file of the assessing officer to determine the standard rent as per the provisions of guidelines prescribed under the Delhi Rent Control Act for computing the ALV in accordance with the provisions of the Income Tax Act inasmuch as the agreed rent does not appear to be rent for which property might reasonably be expected to let from year to year as per provisions of Section 23(1) of the I.T. Act. I, therefore, set aside the order of the CIT(A) and restore the matter to the file of the assessing officer for recomputation of the ALV after determining the standard rent as per the provisions of the Delhi Rent Control Act."
10. Though the Tribunal has taken a particular view that the annual letting value as defined in section 23(1) should be determined as per the standard rent determinable under the Rent Control Act, we have again re-examined the impugned issue in the light of the judgments referred to by the parties and the rival submissions and we are of the considered opinion that whenever the rate of rent on which the property is let out is disputed for different reasons, the best course to determine the standard rent as per the formula laid down in the Delhi Rent Control Act in order to compute the ALV of the property. We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and restore the matter back to the file of the assessing officer to determine the standard rent as per the formula given in the Delhi Rent Control Act and then work out the ALV in order to compute the income from house property.
11. In the result, the appeal of the Revenue is allowed, for statistical purposes.