Income Tax Appellate Tribunal - Delhi
Fizz Drinks Ltd. vs Deputy Commissioner Of Income Tax on 30 May, 2003
Equivalent citations: (2005)95TTJ(DELHI)429
ORDER
Sikander Khan, A.M.
1. These are cross-appeals by the assessee and the Revenue relating to asst. yrs 1991-92 and 1992-93. Since common grounds are involved, these appeals were heard together and are decided by this consolidated order. The grounds of appeals are as under:
ITA No. 3155/Del/1996 for asst. yr. 1992-93 (Assessee's appeal)."1. The CIT(A) erred in confirming the addition of Rs. 25,97,760 made by the AO to the appellant's income from house property. The same is liable to be fully deleted.
2. The CIT(A) erred in confirming the AO's estimate of annual letting value of house property at Rs. 26,03,232.
3. The CIT(A) erred in holding that notional interest @ 15 per cent on the interest-free security deposit of Rs. 1,62,36,000 received by the appellant should be added to the actual rent received for determining the annual letting value of the house property.
4. The CIT(A) erred in confirming the observations of the AO that transactions of purchase and sale of GP/GC sheets do not appear to be genuine.
5. The CIT(A) erred in confirming the action of the AO in assessing income of Rs. 33,457 from business of trading of GP/GC sheets under the head "Income from other sources". The same is liable to be assessed under the head "Profits and gains from business or profession.
6. The appellant craves leave to add, alter or modify the aforesaid grounds of appeal."ITA No. 5223/Del/1996 for asst. yr. 1992-93 (Department's appeal) :
"1. On the facts and in the circumstances of the case, learned CIT(A) has erred in treating the income from rental out of flats as income from business.
2. On the facts and in the circumstances of the case the learned CIT(A) erred in restricting the addition of Rs. 25,97,760 to Rs. 4,88,465 made under the head income from house property when during the asst. yr. 1992-93 the CIT(A)-XV confirmed the addition vide order dt. 29th Feb., 1996."ITA No. 5203/Del/1996 for asst. yr. 1991-92 (assessee's appeal) :
1. The CIT(A) erred estimating the annual letting value of the appellant's commercial flats located at B-II/100, MCIE, Badarpur, New Delhi, at Rs. 4,88,465 as against rent of Rs. 1,94,832 actually received by the appellant.
2. The CIT(A) has erred in not giving specific direction for statutory allowance of l/6th repairs inspite of the facts that on p. 6 of the appellate order he has mentioned the non-allowance of this deduction as one of the facts for holding that the addition made by the AO arbitrarily."
2. The assessee in this case is a company engaged in the business of bottling of soft drinks under the brand name of Thrill, Rush and Sprint. In the assessee's appeal for the asst. yrs. 1991-92 and 1992-93 (ITA Nos. 5203 & 3155/Del/1996), there is a common ground against the determination of income from house property. During the period relevant to asst. yr. 1991-92, the assessee-company gave 90 flats on lease to M/s Usha Rectifier Corpn. of India Ltd., having covered area of 16,236 sq.ft. on the meager sum of Re. 1/per sq. ft. However, Rs. 1,000 per sq. ft. had to be taken as interest-free security deposit which came to Rs. 1,62,36,000. The security deposit was thus to compensate the low rents. The AO further noted that the assessee diverted the amount of security deposit to its sister-concern free of interest/at interest lower than the market rate. He observed that the annual letting value of the aforesaid flats had to be determined at the fair market rent. He added that even for the purpose of calculating house tax on rented property the house tax department considered the actual rent received plus security deposit received from the lessee as interest-free security is nothing but compensation in lieu of rent. In view of the same and in view of the provision of Section 23 of the Act he determined the income from house property at Rs. 26,97,760 adding interest calculated at 16 per cent on the security deposit.
3. Aggrieved, the assessee preferred first appeal before the learned CIT(A) who in the asst. yr. 1991-92 directed the AO to work out the annual letting value on the basis of rateable value fixed by the Municipal Corporation of Delhi. He relied on the Calculatta High Court decision in the case of CIT v. Satya & Co. Ltd. (1994) 75 Taxman 193 (Cal). He observed that the AO had not properly appreciated the facts of the case and had determined the income from house property without allowing statutory deduction of 1/6th for repair and without considering the fact that the assessee had earned interest of Rs. 1,38,082 from Western India Industries Ltd. on a sum of Rs. 50 lakhs advanced to it by way of short deposit. He, therefore, held that the addition of Rs. 26,97,760 worked out by applying interest rate of 16 per cent on security deposit of Rs. 1,62,36,000 could not be sustained. He added that during the course of appellate proceedings the assessee was asked to give details of the rateable value of the entire property. He further added that it was submitted before him that the Municipal Corporation of Delhi had determined the rateable value of the entire property at Rs. 8,50,210. On proportionate basis, the rateable value in respect of area of 16,236 sq. ft. which was let out by the assessee would work out to Rs. 4,88,633 declared. He held that keeping in view the facts of the case it would be fair if the annual letting value was taken at Rs. 4,88,465 as against Rs. 2,93,633. He further observed that in the immediately preceding assessment year rental income shown by the assessee was duly accepted by the AO vide the assessment order passed under Section 143(3) of the Act.
4. However, in the appeal for the asst. yr. 1992-93 the learned CIT(A) took a different view. He observed that the rental income shown was too low which fact had been admitted by the assessee itself. He added that the assessee had also admitted that the benefit of huge interest-free deposit was given by the lessee on account of the fact of low rent. He, therefore, held that in the circumstances of the case, the AO was justified in determining the annual letting value in terms of Section 23(1)(a) of the Act and in that connection he rightly considered the benefit of interest-free deposit for determining "the sum for which the properly might reasonably be expected to let from year to year". He added that the AO had not added notional interest as such but had taken into account that interest for determining the annual letting value in terms of Section 23(1)(a) of the Act. The learned CIT(A) in asst. yr. 1992-93 further observed that the provisions of Delhi Rent Control Act, 1958, as amended by the Amendment Act, 1988, w.e.f. from 1st Dec., 1988, were different from the provisions of Madras/Calcutta Municipal Rent Control Act and hence the Madras and Calcutta High Courts decisions relied by the learned CIT(A) in the asst. yr. 1991-92, referred to above were not applicable. In this connection he noted that after the said amendment w.e.f. 1st Dec., 1988, the provisions of Delhi Rent Control Act were not applicable to premises whose municipal rent exceeded Rs. 3,500. In other words, the provision relating to standard rent is not applicable to a property where rent paid was exceeding Rs. 3,500 after the said amendment w.e.f. 1st Dec., 1988. He added that in the present case the rent received per month was Rs. 16,238 which was more than Rs. 35,000. In view of the said amendment he held that the earlier decisions of the Supreme Court in the cases of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee & Anr. (1980) 122 ITR 700 (SC) and Mrs. Shiela Kaushish v. CIT (1981) 131 ITR 435 (SC) were also not applicable.
5. The learned CIT(A) in the impugned order for asst. yr. 1992-93 further observed that the provision in Sch. III to take into account notional interest at 15 per cent on account of interest-free security deposit for determining the value of the property is an acknowledgement of the fact that the benefit of interest on interest-free deposit was part of the fair market or reasonable rent of the property. But similar provision has not been made in the IT Act because wording of Section 23(1)(a) itself gives ample scope for taking into account all relevant factors to determine the annual letting value of the property. Section 23(1)(a) provides that "for the purpose of Section 22, the annual letting 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". In the present case, the actual rent was much lower as admitted by the assessee itself. The sum for which the property might reasonably be expected to let from "year to year" had to be determined and for this all relevant factors including the benefit of interest-free security deposit had to be taken into account. He observed that since the details of actual rent of other similar properties were not available, the AO was justified in taking into account notional interest on the interest-free deposits to determine the annual letting value. He, however, directed the AO to adopt interest at 15 per cent instead of 16 per cent.
6. The assessee is aggrieved by the CIT(A)'s order in asst. yr. 1992-93. In the asst. yr. 1991-92 both the assessee and the Revenue are aggrieved. In the asst. yr. 1991-92 the assessee is aggrieved on account of CIT(A) adopting the figure of Rs. 4,88,465 as annual letting value as against Rs. 2,93,633 shown. The Revenue is aggrieved because the learned CIT(A) reduced the annual letting value from Rs. 26,97,760 to Rs. 4,88,465.
7. The learned Authorised Representative of the assessee reiterated the submissions made before the learned AO/CIT(A) and the reasons given by the learned CIT(A) in the asst. yr. 1991-92. He also relied on decisions reported in (1994) 75 Taxman 193 (Cal) (supra), CIT v. Poddar Bros. (P) Ltd. (1999) 240 ITR 925 (Cal), R.K.K.R. International (P) Ltd. v. Asstt. CIT (1998) 65 ITD 512 (Del), J.K. Investors (Bombay) Ltd. v. Dy. CIT (2001) 70 TTJ (Bom) 182 : (2000) 74 ITD 274 (Bom). The learned Departmental Representative, on the other hand, relied on the orders of the AO.
8. After considering the rival submissions and the materials on the file, we are of the view that in appeal for asst. yr. 1992-93 the learned CIT(A) had appreciated the facts of the case and the relevant provisions of law properly and correctly, and the same deserves to be upheld. While disagreeing with the view of his predecessor in appeal for asst. yr. 1991-92, he has met all the points and given convincing reasons as mentioned above for holding a different view. In the impugned order for asst. yr. 1992-93 the learned CIT(A) rightly observed that after the amendment in 1988 effective from 1st Dec., 1988, the provisions of Delhi Rent Control Act, 1958, were not applicable to premises whose rent exceeded Rs. 3,500 per month. Since the rent of the premises in question was Rs. 16,238 per month it did not fall within the purview of Delhi rent Control Act. Hence the Supreme Court's decisions in Dewan Daulat Rai Kapoor and Mrs. Shiela Kaushish (supra) were not applicable in the present case. Again, he rightly observed that annual letting value of the property has to be determined in accordance with the provisions of Section 23(1)(a) as "the sum for which the property might reasonably be expected to let from year to year" and for this all relevant factors including the benefit of interest on the deposit had to be taken into account. We are of the view that the learned CIT(A) in appeal for asst. yr. 1992-93 had proceeded on right lines. It will be total injustice to Revenue and a complete defiance of the provisions of law to accept the extremely low rent (Rs. 16,238 for premises having 16,238 sq. ft. (covered area) as annual letting value of the property. It will also amount to discriminatory application of law inasmuch as those who contract at real rent pay high tax and those who contract at extremely low rent get away with meagre tax. Neither law nor any fair judicial administration would allow such thing to happen or to continue in the system. We are of the view that even in cases where Rent Control Act and the aforesaid decisions of the Supreme Court would be applicable, the AO must see whether the standard rent/rateable value which the assessee wants to be adopted as the basis for determining the annual letting value of property was determined by the municipal corporation in accordance with the provisions of the law. Many cases of arbitrarily low and sham fixation of standard rent of high value properties at prime location have come to the notice of the authorities of the corporation/Courts which were not in accordance with the provisions of the relevant law and procedure. If such standard rent/rateable value is routinely allowed to be taken as the basis for determining annual letting value for income-tax purposes then such assessees would be allowed to mislead both the municipal corporation and IT Department. Therefore, while he could not fix the standard rent/rateable value in accordance with law and procedure of municipal valuation as it was beyond his domaine, the AO definitely had to determine reasonable annual letting value as per Section 23(1)(a) of the IT Act. This was what the AO had done.
9. A point has been raised by the assessee that it earned interest on the amount received as interest-free deposit from the lessee which had been shown as income and if annual letting value is determined taking into account notional benefit of interest at 15 per cent on the deposit, it would amount to adding income doubly. In this regard, we are of the opinion that first and foremost we have to determine the annual letting value in accordance with the provisions of Section 23(1)(a). There is nothing in this section which allows exemption from application of the same on such ground. It is also worth mentioning here that the AO noted that the assessee had diverted most of the amount to its sister concern as interest-free advance and it had shown interest income of Rs. 1,38,032.00 only. Therefore, the plea itself is wrong and an attempt to sidetrack and scuttle, and confuse the matter. Moreover, the learned CIT(A) in his order for asst. yr. 1992-93 rightly observed that the AO had not added to the total income the notional interest on the amount, but considered it as a factor for determining the sum for which the property might reasonably be expected to let from year to year in place of adopting comparable rent of similar property. The AO may be directed to adopt rent of similar property as the basis for the annual letting value of the property in question. But such directions will be of no avail as it will prolong the dispute. It would neither bring any relief to the assessee. We are of the view that the annual letting value determined taking into account the factor of interest on the amount was fair and reasonable. The decisions cited by learned Authorised Representative in his support are not applicable to the present case as facts and circumstances are different.
10. Now let us consider one more aspect in regard to the assessee's plea that it amounted to adding income doubly. If the annual letting value were determined on the basis of comparable rent of similar property and then additions were made to the disclosed rent, would the assessee's plea that because it had shown the interest on the advance made out of the same amount, the addition to the disclosed rent amounted to adding income doubly be valid and acceptable ? No, such specious arguments are meant to confuse the authorities.
11. In the light of the above discussion, we hold that order of the learned CIT(A) in respect of above issue in asst. yr. 1992-93 is proper and correct. Accordingly, ground Nos. 1, 2, 3 of asst. yr. 1992-93 and ground No. 1 of asst. yr. 1991-92 of assessee's appeal are dismissed and ground No. 2 of Revenue's appeal for asst. yrs. 1991-92 is allowed subject to the estimate of interest at 15 per cent as done by the CIT(A) in asst. yr. 1992-93 above.
12. Ground Nos. 4 and 5 of assessee's appeal for asst. yr. 1992-93 are not pressed. Ground No. 6 is of general nature.
13. Ground No. 2 of assessee's appeal for asst. yr. 1992-93 relates to claims of 1/6th repairs. Since CIT(A) failed to give finding in this regard the issue is restored to him to be decided in the light of the facts of the case and provisions of law. Assessee should be given reasonable opportunity for being heard.
14. Ground No. 1 of Revenue's appeal for asst. yr. 1991-92 relates to the CIT(A)'s direction to treat the rental income as income from business instead of income from house property as treated by the AO. After hearing both sides and considering the materials on the file, we are of the view that the matter has to be restored to the CIT(A) for reconsideration and fresh order. It is noted that neither the AO nor the CIT(A) had gone into the facts of the case, provisions of law and decided case law for the purpose. Both the AO and the CIT(A) took their respective opposite view in a routine manner. The learned CIT(A) is directed to decide the issue afresh as per law. He should give reasonable opportunity to the assessee for being heard.
15. In the result, the assessee's appeal for asst. yr. 1992-93 is dismissed and the assessee's and Revenue's appeals for asst. yr. 1991-92 are partly allowed.