Income Tax Appellate Tribunal - Mumbai
Tivoli Investment And Trading Co. Pvt. ... vs Acit on 30 June, 2003
Equivalent citations: (2004)84TTJ(MUM)198A
ORDER
M.K. Chaturvedi, Vice President
1. These two appeals by the assessee are directed against the orders of Commissioner of Income-tax (Appeals)-V, Bombay and relate to the assessment years 1990-91 and 1991-92.
2. The main issue pressed before us pertains to the question that whether the revenue authorities were correct in ascertaining the Annual letting Value (hereinafter called ALV) for the assessment year 1990-91 at Rs. 22,00,000/- and for the assessment year 1991-92 at Rs. 22,69,000/-.
3. We have heard the rival submissions in the light of material placed before us and precedents relied upon. The assessee owned premised No. 72 on the 7th floor of Sakhar Bahvan Nariman Point, Mumbai. On 29.11.1988, the assessee entered into an agreement with Citibank and agreed to grant to the Citibank licence to use and occupy the said premised for a period of 10 years on leave and licence basis : Clause 04 and 05 of the said agreement read as under : -
"04. During the entire period of the Licence, the Licensee shall pay to the Licensors a Licence Free or Compensation of RS. 9,825/- (Rupees Nine Thousand Eight Hundered Twenty five Only) per month. The said Licence Free or Compensation shall be paid inclusive of all present taxes and outgoings to the extent of Rs. 9,825/- per month and shall be paid in advance for the month/quarter for which it is due, the first of such payment to be made against the Licensee being put in occupation of the Licensed Premises and subsequent monthly/quarterly payments on or before the 7th day of each succeeding month/quarter.
05. During the period of the Licence, the Licensor shall regularly (whether payable monthly or quarterly, as the case may be) bear and pay all present taxes and outgoings (including all municipal taxes, ground rent, cesses, duties and other outgoings due in respect of the Licensed Premises and payable to the Municipal Corporation or the State Government or to Builders or any Society or Limited Company or Association that may hereafter be formed) payable in respect of the Licensed Premises to the extent of Rs. 9,825/- per Month. Proved that all increases in such taxes and outgoings in excess of Rs. 9,825/- per month hereafter arising during the period of the Licence as also arising on account of imposition of new and other levies/taxes (and whether payable by the Licensor or the occupiers of the Licensed Premises) shall be borne and paid by the Licensee and the Licensors shall not be required to make any such payment,whether by way of increased payment of new taxes. However, in case any amounts are now or hereafter payable to the Builders (or any society or Limited Company or Association that may hereafter be formed) or to the Municipal Corporation or the State Government or any statutory body or authority by way of a security deposit, such amount shall be paid by the Licensors. In addition the aforesaid, the Licensee shall also bear and pay all charges for electricity consumed by the Licensee in the Licensed Premises in accordance with the meter reading thereof and all water charges for water consumed by the Licensee in the course of occupation of the Licensed Premises. "
4. It is stipulated inter alia, that the licensee shall regularly pay the present taxes and outgoings to the extent of s. 9,825/- per month and on formation of the Society to become a Member thereof.
5. On the same date, i.e. 29.11.1988, Deposit agreement was also executed. This agreement run concurrently with the leave and licence agreement. As per this agreement, the Citibank was to pay to the assessee a sum of Rs. 1,54,00,000/- by way of Security Deposit for the due fulfillment and observance by the Bank of the terms & conditions and covenants contained in the leave and licence agreement.
6. Over and above, the Bank also agreed to sanction to the assessee an overdraft facility of Rs. 51,00,000/- on an interest of 15% per annum.
7. In the leave and licence agreement, there was no separate stipulation for the payment of licence fees. The amount of s. 9,825/- paid by the Citibank to the assessee towards the reimbursement of taxes and outgoings was treated as the licence fees by the assessee. In the return of income, the assessee reflected this amount of reimbursement received from the Citibank as the income from business. Shri Dastur vehemently argued that this is not reimbursement. This is the licence fees. Apart from this licence fees, the assessee got the deposits. The benefit emanating out of those deposits is not exigible to tax. It was also argued that under section 23(1)(a) of the Income-tax Act, 1961 (hereinafter called the Act), the AO is bound to take only the retable value as determined by the Municipal Corporation.
8. According to Shri Dastur, the rateable value of the premises which comprised area of 255 sq. mts. was only Rs.10,200/- So, as per section 23(1)(a) of the Act, its value is to be adopted at Rs. 10,200/-. This was ont he basis of a letter given by Aesthetic Builders Private Limited, appended at Page 60 of the Paper Book. In the Paper Book at Page 59, one certificate from Sakhar Bhavan Premises Co-operative Society Limited (Proposed) dated 28.11.1995 was appended, wherein the valuation of premises No. 702 at Sakhar Bhavan was stated to be Rs. 67,331/- per year. In the certificate given along with the Paper Book, it was stated that this evidence was available before the CIT(A). The CIT(A) did pass the order on 29.03.1993. The learned Departmental Representative submitted that the certificate of the assessee is wrong. This evidence was not available before the CIT(A). At this, Shri Dastur submitted that this evidence may be ignored. Similarly, at Page 58 of the Paper Book, the assessee filed a letter from Citibank dated 24.01.1994. In the certificate appended along with the Paper Book, it was stated that this evidence was before the CIT(A). this evidence was obtained subsequent upon the order of the CIT(A). This evidence was obtained subsequent upon the order of the CIT(A), which is dated 29.03.1993. As such, the learned DR made objection. On that, Shri Dastur submitted that this evidence may also be ignored. We just ignore these two papers without making any comment on the falsity of the certificate appended along with the Paper Book.
9. In the ground of appeal, the assessee took the ground that the alleged licence fees received should be treated as the business income. But this ground was not seriously pressed in view of the decision of the Apex court rendered in the case of United Commercial Bank Ltd. Vs. CIT, 32 ITR 688 (SC). In this case it was held that sections are mutually exclusive. Where an item of income falls specifically under one head, it has to be charged under that head only.
10. Adverting to section 23(1)(a) of the Act, we find that the language of this section provides that for the purposes of section 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, It is pertinent to note that the word used is "might" and not "can" or "is". It is thus a national income to be gathered from what a hypothical tenant would pay which is to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not.
11. The Municipal valuation and annual valuation is assessed after taking into consideration all relevant factors, e.g. the prevailing rate of rent in the area and what a similar building of same nature would fetch in that locality, etc.
12. In the case of M.V. Sonavala v. CIT, 177 ITR 246 (Bom), it was held that the income from house property has to be computed on the basis of the sum of which the property might reasonably be let from year to year to the annual Municipal rateable value. The word "or" is disjunctive as such it is possible to take the sum for which property might reasonably let from year to year or the Municipal retable value. It is pertinent to note that while deciding this issue the Hon'ble jurisdictional High court took into consideration the decisions of the Apex Court rendered in the case of Devan Daulat Rai Kapoor Vs. New Delhi Municipal Committee, 122 ITR 700 (SC) and in the case of Sheila Kaushish vs. CIT, 131 ITR 435 (SC).
13. No cogent material was placed before us to indicate that what is the ratable value of the property. The piece of evidence which was placed before the revenue authorities is only certificate from Aesthetic Builders Private Limited who said that the rateable value of the property was Rs. 10,200/-. In out opinion, no credence can be given to this certificate as the valuation from the Assessment Department of the Municipal Corporation was not appended to. Beside, this value is ridiculously low. For determining the Municipal taxes payable, the local authority makes a periodical survey of all buildings within its area. The surveyor first determines the gross rent receivable from the property. The annual value is determined after considering the prevailing rate of rent in the area and what a similar building of the same nature would fetch in the locality, etc.It was noted by the AO that Aesthetic Builders Private Limited, who has issued certificate for reteable value and which is appended at Page 60, has given first and ground floor of the said building on rent/leave & licence to Citibank as per agreement dated 20.10.1983. The licence fees charged was Rs. 43/- per sq.ft. per month. On the basis, for the assessment year 1990-91, the AO took the licence fees at Rs. 50/- per month and calculated the compensation receivable at Rs. 19,65,000/-. This indicates that the rateable value as shown by the assessee is palpably erroneous and cannot be believed.
14. The Hon'ble jurisdictional High court in the case of M V Sonavala (Supra) has held that the income from house property can also be computed on the basis of the sum for which the property might reasonably be let from year to year under section 23(1)(a) of the Act.
15. As per the scheme of the section, it is imperative on the part of the AO to first compute the value of the property as per section 23(1)(a) of the Act, which prescribes that ALV shall be deemed to be the sum for which the property might reasonably be expected to let from year to to year, because sub-section (b) of section 23(1) stipulates that where the annual rent received or receivable is in excess of the sum refereed to in clause (a), the actual sum is to be taken into consideration, meaning thereby that higher of the two value is to be adopted. As such, even for arriving at the value under clause (b), it is mandatory to make computation under clause (a) to find out the sum for which the property might reasonably be expected to let from year to year.
16. The order of section 23 of the Act is to determine the ALV in respect of the house property. If the income is derived from the exploitation of the property, it is to be charged under the head "Income from house property". As the assessee did not reflect the rental income, as such the rental income is determined in accordance with the prescription of law. There is no double taxation. Assuming that there was no security, rent from the let out premises was to be computed. Admittedly the property was exploited. Rental income was not offered for taxation. As such, the rental income was determined with reference to the modus prescribed under the law. As such, in our opinion, there is no double taxation.
17. We now come to the question that if in lieu of rent some benefit is given to the owner, whether the value of such benefit could be assessed as rent.
18. there was lot of discussion on this aspect. Various precedents were relied upon. It is true that no addition is possible with reference to notional interest on interest free deposits. When the ALV is determined under sub-clause (a) of section 23(1) of the Act, with reference to the fair rent and then to such value no further addition can be made. The fair rent takes into consideration everything. The notional interest on such deposit is not any actual rent received or receivable. Under sub-clause (b) of section 23(1) of the Act, only the actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever any such perquisite or benefit is sought to be treated as income, specific provisions in that behalf have been made in the Act by including such benefit etc. in the definition of income under section 2(24) of the Act. Specific provisions have also been made under different heads for adding such benefits or perquisites as income while computing the income under those heads, e.g. salary, business. The computation of the income under the head "Income from house property" is on a deemed basis. The tax has to be paid by reason of the ownership of the property. Even if one does not incur any sum on account of repairs, a statutory deduction there-for is allowed and where on repairs the expenses are incurred in excess of such statutory limit, no deduction for such expensess is allowed. The deductions for municipal taxes and repairs are not allowed to the extent they are borne by the tenant. However, even such actual reimbursements for Municipal taxes, insurance, repairs or maintenance of common facilities are not considered as part of the rent and added to the annual value. Accordingly there can be no scope or justification whatsoever for making any addition for any notional interest for determining the annual value. This view was taken by the Hon'ble Calcuatta High Court in the case of CIT vs. Satya Co. ltd. (1994) 75 Taxman 193 (Cal).
19. Hon'ble jurisdictional High Court in the case of CIT v. J. K. investors (Bombay) Ltd. (2001) 248 ITR 723 (Bom) took the similar view. It was held that the notional interest would not from part of actual rent received or receivable under section 23(1)(b) of the Act.
20. Now the question arises that what the actual rent in the present case? As per the concise Oxford Dictionary the term "actual" connotes existing in fact, real. What is the actual rent or real rent of the property in question? It is not stipulated in the agreement. It transpires from the perusal of different clauses that the amount of Rs. 9,825/- is only reimbursement. The Citibank is required to pay this amount towards the present taxes and outgoings. It is not towards the licence fee. Therefore, the question arises that what the assessee is getting is out of the exploitation of its right in the property. Truly speaking, no licence fee. No amount of compensation or licence fee is separately stipulated in the agreement. What is the consideration for the user of the property? Shri S Vaidyanathan, Assistant Vice President and Head - Services Administration, was examined on 27.08.1992 under section 131 of the Act. Several questions were put to him. We reproduce here the question and reply of Question No. 8.
"Q.8 In answer to Question No. 2 you have stated that you have given interest free deposit of Rs. 1 crore 54 lakhs to M/s. Tivoli Investment and Trading Co. Can you tell me whether the interest is not charged in lieu of leave and licence premise occupied by the Bank ?
Ans. The interest free security deposit of Rs. 1 crore 54 lakhs has been given to the company as a part of compensation towards our occupying the premises as Sakhar Bhavan."
21. It transpires from the reply of Shri S Vaidyanthan that the usufructus of the deposit amount was the consideration for the user of the property. As such, the usufructus can be considered as the licence fee. Now the question arises what is that usufructus? The assessee availed the overdraft facility on an interest of 15% per annum. As such to find out the usufructus of the deposit amount, if we apply the rate of 15%, the usufructus will come to Rs. 23,10,000/-. This usufructus is not additional advantage to the assessee. It is the sum of money for which the property was let out. It was the consideration for the user of the house property. The Hon'ble Apex Court in the case of Bhagwan Dass Jain vs. Union of India (2002-TAXINDIAONLINE-165-SC-IT) (1981) 128 ITR 315 (SC) has held that even in its ordinary economic sense, the expression "income" includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it on self. Here we are concerned with the question that what the assessee received by exploiting the user of the property? Obviously a deposit is not the receipt because it is refundable. Deposit is not obtained to secure the payment of rent because there is no stipulation for any rent. What the assessee calls rent is nothing but reimbursement of the actual expenditure. This cannot be the consideration for the user of the property. The assessee is entitled to get the usufructus out of the amount of deposit. The tree of money of course belongs to the Citybank. They have given the tree of money to the assessee in consideration of the user of the assessee's property. The assessee is not the owner of the tree. He has the right to get the fruits of that tree and the fruits of that tree are signified by term "usufructus". That is the consideration for the user for exploiting the premises No. 72 at the Sakhar Bhavan. We find no merit in the contention of the assessee that the amount of reimbursement received by the assessee towards the payment of taxes, etc. is the consideration for the user of the property. While computing the income under the head "House property", it is incumbent on the AO to find out that what consideration the assessee did receive for the user of the property.
22. In the case of J K Investors (Bombay) Ltd. (supra), it was found that the actual rent received by the assessee was more than the fair rent even without taking into account the notional interest. In the present case the assessee received only the deposit and Rs. 9,825/- per month towards the payment of taxes and outgoings. No separate amount of licence fee of rent is anywhere stipulated in the agreement. This amount cannot be construed to be licence free or rent. As such, the facts of the present case are different. Hon'ble High Court has further observed in this case that the fair rent is fixed even under the Bombay Municipal Corporation ACt and Rent Act by taking into account various principles of valuation, vis. the contractors' method, the rent method, etc. In the present case we find that there is no cogent evidence in regard to the determination of the fair rent under the Bombay Municipal Corporation Act. The certificate from Aesthetic Builders Private Limited, which is bereft of any supporting documents, cannot be relied upon. The rateable annual value for the area 255 sq. mts. at Nariman Point is given at Rs. 10,200/- which is ridiculously low. The other papers filed, to increase that valuation in the Paper Book are not to be relied upon. The learned counsel stated that these are to be ignored.
23. Hon'ble jurisdictional High Court in the case of Saipansaheb WD. Dawoodsaheb Vs. Laxman Venkateshi Naik, LVII BLR 413 (Bom) has held that in fixing the standard rent the correct approach should be, what is the net return which a landlord should be reasonably allowed on his investment. In our opinion, the amount of Rs. 10,200/- cannot be said to be the correct net return. For that purpose, the AO found that the same builder given the Ground Floor of the building to the Citibank as per agreement dated 20.10.1983 on leave and licence basis. For that rent was charged at RS. 43/- per sq. ft. per month. In 1983 the return was Rs. 43/- per sq. ft. In 1988 the AO took the rent at Rs. 50/- per sq. ft. and accordingly calculated the rent receivable at Rs. 19,65,000/-.
24. Adverting to the rateable valuation, it is pertinent to note that the assessee did not file any documentary evidence from the Municipality. It is well known principal of law canonized in the dictum : - "DE NON APPARENTIBUS ET NON EXISTENTIBUS EADEM EST RATIO", meaning thereby the which does not appeal will not be presumed to exist. The letter from the Builder is the self-serving document. As such, no conclusion can be drawn on the basis of that letter. The conduct of the assessee in furnishing the incorrect certificate concerning the fresh evidence proves beyond the shadow of doubt that the evidence which was furnished originally was incorrect. Besides, as man should not be permitted to blow hot and cold with reference to the same fact or insist, at different times, on the truth of each two conflicting allegations, according to the promptings of his private interest. This in inculcated in the common law dictum : "ALLEGANS CONTARIA NON EST AUDIENDUS" (he is not to be heard who alleges things contradictory to each other).
25. As the ALV on the basis of rateable value was not correctly mentioned, as such the AO proceeded to determine the value as per the mandate of the decision of the Hon'ble jurisdictional High court rendered in the case of M V Sonavala (Supra), wherein it is laid down that the income from house property has to be computed on the basis of the sum for which the property might reasonably by let from year to year. In determining such value, the AO adopted the rent paid by the same tenant to the landlord. Thereafter he calculated the usufructus and determined the ALV. Various precedents were placed before us. We have considered all the precedent. Examined the text and context. A close similarity between one case and another is not enough. Even a single significant detail may alter the entire aspect. The facts the present case are totally different from the facts of the cases referred. We have made it clear in the preceding Paras that no addition is possible with reference to the notional interest on interest free deposit. But if there is no rent paid and in lieu of that rent excessive deposit is being mad,e, the usufructus of the said deposit may be considered as rent. Normally the deposits is made as security for the payment of rent and the vacation of premises on the expiry of lease. Here the deposit is accepted in lieu of rent. As such, in our opinion, the revenue authorities were correct in considering the usufrucuts from the security as rent. We find no infirmity in the impugned order. Accordingly we confirm the same on this count.
26. Once it is accepted that the income in question is to be computed as "Income from house property" and no as "Business income", then all the deductions permissible under the house property income should be given to the assessee while computing the income. We direct the AO to compute the house property income in accordance with law, after allowing all the permissible deductions.
27. In the result, appeals of the assessee stand partly allowed.