Income Tax Appellate Tribunal - Mumbai
Ramrikhdas Balkison & Sons P. Ltd , ... vs Assessee on 21 November, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" Bench, Mumbai
Before Shri R.K. Gupta, Judicial Member
and Shri B. Ramakotaiah, Accountant Member
ITA No. 696/Mum/2009
(Assessment Year: 2005-06)
M/s. Ramgopal Ganpatrai & Sons ACIT (OSD-1), Central 7
Pvt. Ltd., Laxminarayan Mandir Vs. Mumbai
Chawl, Vile Parle, Mumbai
PAN - AAACR 7642 G
Appellant Respondent
ITA No. 697/Mum/2009
(Assessment Year: 2005-06)
M/s. Ramrikhdas Balkison & Sons ACIT (OSD-1), Central 7
Pvt. Ltd., Laxminarayan Mandir Vs. Mumbai
Chawl, Vile Parle, Mumbai
PAN - AAACR 7612 N
Appellant Respondent
Appellant by: Shri Vijay C. Kothari
Respondent by: Smt. Chandra Ramkrishnan
ORDER
Per B. Ramakotaiah, A.M.
Both these appeals are against the orders of the CIT(A) Central-V, Mumbai dated 21.11.2008 from the same group having common issues. For the sake of clarity the grounds in ITA No. 696/Mum/2009 is extracted as under: -
"1. The learned CIT(A) has erred in confirming the addition of Rs.49,36,320/- as annual letting value under House Property Income.
2. The learned CIT(A) has erred in confirming the disallowance of establishment and statutory expenses of Rs.15,399/-."
Similar issue is also involved in ITA No. 697/Mum/2009 where the annual letting value in ground No. 1 is Rs.24,20,160/- and establishment and statutory expenses is Rs.18,542/-.
2 ITA No. 696 & 697/Mum/2009M/s. Ramgopal Ganpatrai & Sons
2. Briefly stated the company, Ramrikhadas Balkison & Sons P. Ltd. in ITA No. 697/Mum/2009, having property at 6A, Samudra Gaurv Apartment, Worli and this was let out to Mr. T.B. Ruia which have been vested with Mrs. Asha Ruia, wife of Mr. T.B. Ruia and the assessee also entered into a separate agreement of lease dated 14.08.2000. The original lease was subsisting from 1987 and the property is a tenanted property according to the company. The company offered the house property income on the basis of the rent paid by the sub-tenant Director but the A.O. has not accepted the rent paid as according to him the assessee has not followed the provisions of Maharashtra Rent Control Act and accordingly he, after enquiries, estimated the value of the property on market basis and determined the house property income. The CIT(A) confirmed the action of the A.O. holding that the provisions of Maharashtra Rent Control Act have been violated by the company and the tenant and the property has to be valued as was done by the A.O. He confirmed the action of the A.O.
3. Before us the learned counsel submitted that the objections of the A.O. and the CIT(A) that Maharashtra Rent Control Act was violated is on the basis that the assessee has fixed the rent over and above the standard rent and accordingly the provisions are not applicable. He drew our attention to the fact that the property was tenanted for a long period and the provisions of Maharashtra Rent Control Act protects the tenant and also permits that if rent was fixed prior to implementation of Maharashtra Rent Control Act 1999 the rent fixed will become standard rend under the Act and accordingly the assessee is covered by the provisions of Maharashtra Rent Control Act, 1999. The assessee also placed a paper book on record to indicate that there was certain court proceedings attaching the said property by the Greater Bombay Co-operative Bank as the company stood guarantee for loan taken by another company and in this proceedings the Hon'ble Bombay High Court granted temporary injection and the Court of Small Cases of Mumbai also declared Smt. Asha Ruia as a protected tenant and accordingly the company cannot evict the tenant and so the objections of the CIT(A) does not stand.
3 ITA No. 696 & 697/Mum/2009M/s. Ramgopal Ganpatrai & Sons
4. The learned D.R., however, relied on the orders of the A.O. and CIT(A).
5. We have considered the issue. As seen from the papers available in the paper book the assessee has given the property on rent by Mr. T.B. Ruia long back and on his death Mrs. Asha Ruia became the tenant and there was a revised agreement dated 14.08.2000. In all the years the A.O. has been accepting the rent received from the assessee company and in fact the assessment orders for A.Y. 2004-05 placed on record also indicate that the rent received at Rs.30,000/- was accepted as such in the order under section 143(3) and income from house property was determined at Rs.5,040/-. Further establishment and statutory expenses are also allowed contested in ground No. 2. It is already established by various principles that while invoking the provisions of section 23 the A.O. has to consider the municipal rateable value or standard rent or actual rent received, whichever is higher. The existing case law on this issue has been elaborately discussed by the Coordinate Bench in the case of ITO vs. Makrupa Chemicals (P) Ltd. 108 ITD 95 (Bom) wherein methodology was given in arriving at the annual value of property under the provisions of section 23(1).
"11. Let us now examine and analyse the legal position as laid down by the Hon'ble High Courts as well as the Tribunal. It would be appropriate at this stage to reproduce the relevant provisions. Sec. 23(1), as originally enacted, read as under :
"23. (1) For the purposes of s. 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year."
The aforesaid provisions were amended by the Parliament effective from 1st April, 1976. The relevant portion of the amended provisions reads as under :
"Annual value how determined : (1) For the purpose of s. 22, the annual value of any property shall be deemed to be :
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) 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."
12. The expression "the gross annual rent at which such house or building... may reasonably be expected to let from year to year" as 4 ITA No. 696 & 697/Mum/2009 M/s. Ramgopal Ganpatrai & Sons contained in s. 127(a) of the Calcutta Municipal Act, 1923 which is analogous to the expression in s. 23 of the Act was considered by the Hon'ble Supreme Court in the case of Corporation of Calcutta vs. Smt. Padma Devi AIR 1962 SC 151. Their Lordships at p. 153 observed as under :
"A bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reasonableness."
On the same page, it was further observed as under :
"A combined reading of the said provisions leaves no room for doubt that a contract for a rent at a rate higher than the standard rent is not only not enforceable but also that the landlord would be committing an offence if he collected a rent above the rate of the standard rent. One may legitimately say under those circumstances that a landlord cannot reasonably be expected to let a building for a rent higher than the standard rent. A law of the land with its penal consequences cannot be ignored in ascertaining the reasonable expectations of a landlord in the matter of rent. In this view, the law of the land must necessarily be taken as one of the circumstances obtaining in the open market placing an upper limit on the rate of rent for which a building can reasonably be expected to let."
From the above observations, it is clear that the Municipal Committee could not determine the annual value over and above the standard rent. Similar view was taken in the subsequent judgment in the case of Corporation of Calcutta vs. Life Insurance Corporation AIR 1970 SC 1417. However, this principle was further extended by the Hon ' ble Supreme Court in the case of Guntoor Municipal Council vs. Guntoor Town Rate Payers ' Association AIR 1971 SC 353, by holding that where the standard rent is not fixed by the Rent Controller, then, the assessing authority under the municipal enactment should determine the standard rent in accordance with the rent control legislation. This is apparent from the following observations of their Lordships at p. 355 :
"It is perfectly clear that the landlord cannot lawfully expect to get more rent than the fair rent which is payable in accordance with the principles laid down in the Act. The assessment of valuation must take into account the measure of fair rent as determinable under the Act. It may be that where the Controller has not fixed, the fair rent, the municipal authorities will have to arrive at their own figure of fair rent but that can be done without any difficulty by keeping in view the principles laid down in s. 4 of the Act for determination of fair rent."
13. The above decisions were considered and followed by the apex Court in the case of Dewan Daulat Rai Kapoor vs. NDMC (supra). The 5 ITA No. 696 & 697/Mum/2009 M/s. Ramgopal Ganpatrai & Sons discussion on this subject would not be complete without referring to the judgment of the apex Court in the case of Dr. Balbir Singh vs. MCD (supra) wherein it was held that in a given case the rateable value determined by the municipal authority may be less than the standard rent having regard to various attendant circumstances and consideration. In such cases, the Court opined that it is the rateable value so determined which shall be taken for tax purposes and not the standard rent. It was held that the standard rent was the upper limit which cannot be exceeded in any case.
14. All the decisions mentioned above were rendered in connection with the determination of rateable value under municipal laws. The ratio laid down in the above decisions has been applied by the apex Court for determining the ALV under s. 23 of the Act in the case of Mrs. Shiela Kaushish (supra) on account of similarity in the provisions under the municipal enactments and s. 23 of IT Act, 1961. Thus the rateable value, if correctly determined, under the municipal laws can be taken as ALV under s. 23(1)(a) of the Act. To that extent we agree with the contention of the learned counsel of the assessee. However, we make it clear that rateable value is not binding on the AO. If the AO can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/evidence placed on record. This view is fortified by the decision of Patna High Court in the case of Kashi Prasad Kataruka vs. CIT 1976 CTR (Pat) 95 : (1975) 101 ITR 810 (Pat).
15. The above discussion leads to the conclusions that : (i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances,
(ii) an inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness, (iii) actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration, (iv) such ALV, however, cannot exceed the standard rent as per the rent control legislation applicable to the property, (v) if standard rent has not been fixed by the Rent Controller, then it is the duty of the AO to determine the standard rent as per the provisions of rent control enactment, (vi) the standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent.
16. Still the question remains to be decided is how to determine the reasonable/fair rent. The apex Court has indicated in the above judgments that extraneous circumstances may inflate/deflate the fair rent. So, the question arises as to what may the circumstances which may be taken into consideration while determining the fair rent. In our opinion, no particular test can be laid down since it would depend on the facts of each case. However, we find that Hon'ble Supreme Court had to consider this question in the case of Motichand Hirachand vs. Bombay Municipal Corpn. AIR 1968 SC 441 wherein it was observed as under :
6 ITA No. 696 & 697/Mum/2009M/s. Ramgopal Ganpatrai & Sons "It is well recognized principle in rating that both gross value and net annual value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits carried from the property or to the cost of construction." Even the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (supra) has held that under s. 23(1)(a) of the Act, the AO can take into consideration various factors like contractor's method as is apparent from the following observations :
"At the cost of repetition, it may be mentioned that under s. 23(1)(a), the AO has to decide the fair rent of the property. While deciding the fair rent, various factors could be taken into account. In such cases, various methods like contractors' method could be taken into account."
17. The circumstances mentioned above are only illustrative and not exhaustive. Therefore, in our opinion, the AO can take into consideration any circumstance which may inflate/deflate the fair rent under s. 23(1)(a) of the Act. If such rent is less than the standard rent, then the same shall be taken as fair rent, otherwise the standard rent shall be considered as fair rent under s. 23(1)(a) of the Act. Once the fair rent is so determined, then the applicability of s. 23(1)(b) would have to be considered. If the actual rent received/receivable is higher than the fair rent, then the actual rent would be treated as ALV, otherwise the fair rent so determined shall be taken as ALV."
6. In this case it is also on record that the property is a tenanted property and the tenant is a protected tenant as per the orders of the Court. Since the rent received by the assessee is more than the standard rent/municipal rateable value the A.O. has no option than to accept the rent received as per the existing judicial principle on this issue. In view of this we are not in agreement with the orders of the A.O. and CIT(A) and direct him to accept the rent offered by the assessee. In view of this ground No. 1 is allowed.
7. Ground No. 2 pertains to the allowance of establishment and statutory expenses not allowed by the A.O. while redetermining the annual letting value.
8. It is seen from the record that the assessee has been calming these expenses as part of computation of house property income. As seen from the 7 ITA No. 696 & 697/Mum/2009 M/s. Ramgopal Ganpatrai & Sons record A.O. in A.Y. 2004-05 has allowed the expenditure and also in earlier years. In view of this the A.O. is directed to allow the expenses as claimed. Ground is considered allowed.
9. Similar facts exist in ITA No. 696/Mum/2009 and here also the two properties owned by the assessee company are subjected to protected tenancy under the Maharashtra Rent Control Act, 1999 being devolved on Mr. T.B. Ruia and Mrs. Asha Ruia and Mrs. Vidhi D. Ruia after the death of Mr. T.B. Ruia. Here also the property was let out from 01.10.1987 and the Department has been accepting the same in all the earlier years. For the reasons discussed in ITA No. 697/Mum/2009 we direct the A.O. to accept the rent received under the provisions of section 23(1) and redetermine the house property income accordingly. A.O. also is directed to allow the establishment and statutory expenses which are being allowed in earlier years. Accordingly the grounds are considered allowed.
10. In the result, both the appeals are allowed.
Order pronounced in the open court on 26th March 2010.
Sd/- Sd/-
(R.K. Gupta) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, Dated: 26th March 2010
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) Central-V, Mumbai
4. The CIT Central-II, Mumbai City
5. The DR, "D" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.