Income Tax Appellate Tribunal - Mumbai
Acit Cen Cir 1(2), Mumbai vs Dr. Yusuf K. Hamied, Mumbai on 20 May, 2018
Aayakr ApIlaIya AiQakrNa " G " nyaayapIz maM u b a[- mao .
IN THE INCOME TAX APPELLATE TRIBUNAL " G" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAMIT KOCHAR, AM
Aayakr ApIla saM . / ITA No. 488/Mum/2016
(inaQa- a rNa baYa- / Assessment Year 2012-13)
The Asst. Commissioner of Shri Yusuf K. Hamid
Income Tax, Central Circle - W indsor Villa, W est Field
1(2), Room No. 9.6, Pratistha Estate, 63, Bhulabhai Desai
Vs.
Bhavan, 10 t h Floor, Old CGO Road, Mumbai -400 026
Building Annexe, Mumbai -400
020
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
PAN No. AAAPH4309K
Revenue by : V. Vidhyadhar, DR
Assessee by : Dhaval Shah, AR
Date of hearing: 09-05-2018 Date of pronouncement : 25-05-2018
AadoSa / O R D E R
PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-47, Mumbai [in short CIT(A)], in appeal No. CIT(A)-47/AP.28/14-15 dated 06.11.2015. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-1(2), Mumbai (in short 'ACIT') for the A.Y. 2012-13 vide order dated 20.11.2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2ITA No . 4 8 8/ Mum / 20 1 6
2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO being difference between the market rent and rent actually paid by assessee as perquisite within the meaning of section 2(24)(iv) of the Act. For this Revenue has raised following grounds: -
"(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.99,09,960/- without appreciating that the difference between the market rent and the rent actually paid by the assessee is a perquisite within the meaning of section 17(2) (ii) or a benefit within the meaning of section 2(24)(iv)."
(ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in appreciating the fact that the assessee has been residing in the bungalow by paying a meager rent in his capacity as a Chairman because of existence of employer - employee relation and not as a protected tenant"
(iii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief to the assessee without appreciating the reality after lifting corporate veid7in the case of the assessee."
3. Briefly stated facts are that the assessee is a Chairman and Managing Director of Cipla Ltd. earning salary there from. The assessee is residing in a rental premise, which is owned by its employer Cipla Ltd. The assessee is paying rent of ₹ 1670/- for this bunglow situated at Windsor Villa, Bhulabhai Desai Road, Mumbai. The AO treated the differential amount after estimating the rent of this bunglow as perquisite 3 ITA No . 4 8 8/ Mum / 20 1 6 for this rent free accommodation and added the perquisite at ₹ 99,09,960/-. The AO also added the similar perquisite in earlier years i.e. AYrs 2008-09, 2009-10, 2010-11 and 2011-12. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) considering the decision for AY 2009-10 of ITAT deleted the addition by observing in Para 5.2 as under: -
"5.2 On perusal of the order no. ITA No.5319/Mum/2012 dated 21.01.2015 for A.Y.2009- 10, I find that the ITAT has upheld the deletion of the addition as follows:
"After considering the assessee's reply with respect to each and every aspect, the Id. CIT('A) recorded his findings that the assessee was occupying house as per the independent rent agreement for which the assessee was paying standard rent and no benefit accrued to the assessee his capacity of employee, when the assessee was independently receiving the HRA from his employer for not providing the accommodation. The findings recorded by the Id. CIT(A) are as per the material available on record which has not been controverted by the Department. The conclusion drawn in the impugned order of the Id. CIT(A), discussion made in the assessment order, contentions of the Id. Counsel for the assessee & Revenue, and material available on record are kept in just a position and analyses, we find that no benefit 4 ITA No . 4 8 8/ Mum / 20 1 6 accrued to in the hands of the assessee in the form of perquisite. Accordingly, we do not find any reason to interfere with the findings recorded by the Id. CIT(A) which resulted into the deletion of addition made on account of perquisite in the hands of the assessee."
No change in material facts has been brought out in the impugned order. Accordingly, respectfully following the decision of the Tribunal in the appellant's own case, the addition made by the AU is deleted and Ground No. 1 raised by the appellant is allowed."
Aggrieved, now Revenue is in appeal before Tribunal.
4. Before us, the assessee filed Tribunal's order for AYrs 2008-09, 2009-10, 2010-11 and 2011-12, wherein Tribunal in a speaking order in ITA No. ITA No 5319/Mum/2012 for AY 2009-10 vide order dated 21.01.2015 deleted the addition vide Para 4 and 5 as under:-
"4. We have considered the rival contention, carefully gone through the orders of authorities below and deliberated upon the judicial pronouncements referred by the lower authorities in their respective orders as well as the decisions cited by the ld. A.R. and ld. D.R. during the course of hearing before us. From the record we found that the assessee was having tenancy agreement with his landlord and occupying the house in the capacity of tenant. Merely because of the fact that the assessee was employee of Cipla Laboratory who was also owning the house, there was no prohibition 5 ITA No . 4 8 8/ Mum / 20 1 6 in law restricting the assessee to taken the house on rent by paying standard rent. Coexistence of the relationship of employer and employee as also of landlord and tenant particularly if the latter arrangement for taking the house at rent as per standard rent is not barred if separate contractual relationship co-exist with independent terms. In the instant case, even though as per the terms of employment, Cipla was to provide accommodation to the assessee, however the fact that assessee has not availed this benefit but opted to receive HRA and offered the same for tax in his return of income is not in dispute. It is also a matter of record that the assessee was granted the rights to purchase the premises in terms of agreement entered in the year 1978 and this arrangement did not negate the agreement of tenancy between the assessee and Cipla. Since the assessee was not availed rent free accommodation, Cipla was paying HRA which was duly offered by the assessee in his return of income. The question of determining perquisite value for provision of accommodation at concessional rent, being the excess of the specified rate of salary over the rent recovered from the employee will arise only where the rent is recovered from the employee and not when the rent is received from a tenant under a separate enforceable tenancy agreement even if the tenant is also the employee of the landlord. The ld. CIT(A) has dealt with each and every objection of the A.O. and after calling the assesse's reply, synopsize the A.O.'s objection which are as under:-6
ITA No . 4 8 8/ Mum / 20 1 6 AOs findings Contentions on behalf of the appellant Para 4.4.2 of AO's order An The agreement is of a examination of the agreement composite nature containing to sell the property dated the covenants of conditional 23/8/1978 revealed that this sale of property and grant of agreement was between M/s tenancy rights.
Cipla Ltd. and the assesse for the sale of the Windsor Villa to assessee for a consideration of Rs. 8 lakh plus stamp duty and is not a tenancy agreement. This agreement basically y says about the manner in which the payment for transfer of property shall be made and that the assessee shall be bound to purchase the property subject to specific terms and conditions mentioned therein. Para 3.4.3 of AO's order The assessee was eligible to Further it is noticed that as receive the benefits of rent free per this agreement, the accommodation from the Cipla assessee has got an Limited as per the terms of opportunity to stay in this appointment. There should be house by virtue of his no objection if the assessee relation with the company elected to forgo this benefit. being its Chairman and not in There is no prohibition in law a capacity of protected for co-existence of relationship tenant. The perusal of this of employer and employee as agreement reveals that this also of landlord and tenant property was purchased by particularly if the latter M/s Cipla Ltd especially for arrangement is on arms length the residential use of basis on consideration of assessee. payment of standard rent. Para 3.4.4. of AO's order Since the agreement entered The Rent Act in Maharashtra into by the appellant with M/s was earlier governed by the Cipla Ltd. or for that matter, Bombay Rent Act, 1947 tenancy in favour of appellant which has now been replaced was created prior to by Maharashtra Rent Control commencement of this Act, Act, 1999. Section 55, of the sec. 55 does not apply to the Maharashtra Rent Control facts of the present case. Act 1999 deals with the Moreover, there was no registration of tenancy provision under 1947 Act, 7 ITA No . 4 8 8/ Mum / 20 1 6 agreements and says that all identical to sec. 55 of MRCS, the tenancy agreements after 1999. commencement of this Act must be compulsorily registered. Para 3.4.4. of AO's order The employer-employee The absence of any written relationship is not at all denied tenancy agreement between since if the fact on record. The A11/s. Cipla Ltd., and real issue is whether any assessee shows that the unacceptable motive c o u l d b property was rented to e a s c r i b e d t o t h e assessee only by virtue of arrangement. In this behalf, the employer-employee relation only gravamen of the AO is with M/s. Cipla Ltd. Even if that a prime property was we consider the other given on a nominal rent. argument of assessee that in However, while leveling this a absence of any written llegation,theAOhas agreement and on the basis of n o t considered that standard oral agreement the assessee rent cannot be held to be automatically assumes nominal rent when the very tenancy is also not correct same measure is also because the assessee has applicable for determination of been able to take such liberty municipal rateable value an d simply because of his further, the attribute of relation as an employee with primeness to the property b y t the owner. Otherwise it is heAO,basedonprese highly unlikely that such a n t situation, that was tenanted prime property will be given way back in the year 1978 is to a third person without both unfair and unrealistic. agreement in writing at such a nominal rent which is otherwise required to be registered as per law. Para 3.4.4 of AO's order In We are unable to appreciate as fact the agreement to sell to h o w a st an d b y ar r an g e dated 2310811978 on which me n t of occupancy cannot be the assessee is harping, consistent with the agreement actually provides for a of tenancy. There is no legal temporary or intermediate basis for this view. Further, arrangement of stay of CIPLA has no legal grounds assessee in the property till for terminating the tenancy. the conditions in the Even if CIPLA has diluted its agreement are not completed. rights for eviction after the It does not give the assessee termination of employment of
a right as a tenant and in fact the assessee, the benefits, if at is only a standby all, have accrued to the arrangement. It is only assessee when the rights of 8 ITA No . 4 8 8/ Mum / 20 1 6 because of the authority and purchase of the premises were relation that the assessee granted to the assessee in the enjoys with his employer that year 1978. This arrangement despite of the specific does not negate the agreement agreement the same has not of tenancy between the been purchased by him even assessee and CIPLA. after the lapse of more than 32 years. It would not have been possible for any other person but the chairman of the employer company to enter in an agreement and not complete it on his will. Had there been any other person staying in this property at such a nominal rent the owner would have definitely made efforts to evict him. No such effort was made or even contemplated by the owner of the property MIs. Cipla Ltd., just because its Chairman is staying there.
Therefore, it is clear that M/s.
Cipla Ltd., was under no obligation to out this property to the assessee at a nominal rent of Rs. 1670 p.m. and has done so only because of the existence of employer - employee relation .This establishes beyond doubt that assessee was staying in the capacity of his position in the company as an employee and not as a protected tenant.
Para 3.5 of the order As per By the very fact that the Section 2(24(iv) of the I.T. assessee has paid standard rent Act, income includes the to CIPLA, it cannot be held value of only benefit or that the assessee has obtained perquisite whether any benefit which could be convertible into money or considered as income under not, obtained from a section 2(24)(iv) of the Act. company either by a director or by a person who has substantial interest n the company, or by a relative of 9 ITA No . 4 8 8/ Mum / 20 1 6 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 payable by director or other person aforesaid.
Therefore, the use of accommodation owned by the employer at a concessional rent shall be chargeable to tax as per requisite within the meaning of section 17(2)(ii) of the I.T. Act.
Para 3.6 of the order The The assessee has not derived assessee instead of any benefit actual or notional purchasing the property (as since he has paid standard rent agreed in the agreement to to CIPLA. sale dated 23/08/1978) had preferred to stay in it by paying rent. Had this property been purchased in the name of assessee then he would have been liable to pay taxes on it under the head income from house property as he is the owner of more than one residential property. The assessee has occupied this house ostensibly for the purpose of his residence through the convenient medium of his employer company,.
Therefore, it is evident that in the gardb of the tenancy right, the assessee has concealed the actual benefit arising by using the captioned property as his residence in has capacity of the Chairman and Managing Director.
Para 4.1 of the order The `The question of determining value of any concession in perquisite value for provision the matter of rent n respect of of accommodation at 10 ITA No . 4 8 8/ Mum / 20 1 6 any accommodation provided concessional rent being the to the assessee by his excess of the specified rate of employer is taxable as per the salary over the rent recovered provisions of section from the employee, will arise 1792)(ii) of the IT Act. It has only where the rent is been held n Wilkins V recovered from the employee Rogerson (49 ITR 395(CA) and not when the rent is that perquisite are valued on received from a tenant under the basis of their value to the an enforceable tenancy employee and not on the bass agreement ever if the tenant is of cost to the employer for also the employee of the land providing such benefit. An lord.
employer may own
residential accommodation
and provide it at a
concessional rent to his
employee.
5. As the issue is squarely covered in favour of assessee on identical facts for all the AYrs by Tribunal's order in assessee's own case, consistently following the same, we confirm the order of CIT(A) deleting the addition.
6. In the result, the appeal Revenue is dismissed.
Order pronounced in the open court on 25-05-2018. Aado S a kI Gaao Y aNaa Ku l ao mao idnaM k 25-05-2018 kao kI ga[- .
Sd/- Sd/-
(RAMIT KOCHAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 25-05-2018
Sudip Sarkar /Sr.PS
11
ITA No . 4 8 8/ Mum / 20 1 6
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI