Income Tax Appellate Tribunal - Mumbai
Ramgopal Ganpatrai & Sons P. Ltd, Mumbai vs Department Of Income Tax on 15 September, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "D",
MUMBAI
BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI T.R.SOOD (A.M)
ITA NO.5515/MUM/2010(A.Y. 2007-08)
The DCIT (OSD)-1, C.R.7, M/s.Ramrikhdas Balkison &
Room No.413, 4th Floor, Sons Pvt. Ltd.
Aaykar Bhavan, MK Road, Vs. Plot No.7, Chandivali Farm
Mumbai - 20. Road, Chandivali,
Mumbai - 72.
(Appellant) (Responsent)
PAN:AAECR 3690L
ITA NO.5516/MUM/2010(A.Y. 2007-08)
The DCIT (OSD)-1, C.R.7, M/s. Ramgopal Ganpatrai &
Room No.413, 4th Floor, Sons Pvt. Ltd.
Aaykar Bhavan, MK Road, Vs. 219, @B, Sanjay Mittal Indl.
Mumbai - 20. Est.,
A.K.Road, Marol, Mumbai -59.
(Appellant) PAN:AAACR 7642G
(Respondent)
Appellant by : Shri C.G.K.Nair
Respondent by : Shri Pramod D. Rassam
Date of hearing : 15/09/2011
Date of pronouncement : /09/2011
ORDER
PER N.V.VASUDEVAN, J.M,
This is an appeal by the revenue against two orders both dated 23/4/2010 of CIT(A)-40, Mumbai relating to assessment year 2007-08. Both the appeals involve identical issue and were heard together. We deem it convenient to pass a consolidated order.
2 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08)2. Grounds of appeal raised by the revenue in ITA No.5515/Mum/2010 reads as follows:
"a. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.26,62,176/- relying on the Tribunal decision for A.Y 2005-06 without considering the facts that the addition for A.Y 2005-06 was confirmed by the CIT(A) and decision of the Tribunal has not been accepted by the Revenue.
b. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in relying on the decision of the Tribunal where it was held that the tenant is protected tenant and that Maharashtra Rent Control Act 1999 is applicable to the property, without appreciating facts that assessee is receiving rent more than the standard rent fixed by the Municipal Corporation and therefore, the property is outside the purview of Maharashtra Rent Control Act 1999.
c. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in relying on the Tribunal decision where the acts that the transaction between assessee and tenants is inflacted by the reason of extraneous consideration an ALV fixed by the Municipal limit is not binding upon the Assessing Officer in determining the ALV of the property."
3. Grounds of appeal raised by the revenue in ITA No.5516/Mum/201 reads as follows:
"a. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.54,29,952/- relying on the Tribunal decision for A.Y 2005-06 without considering the facts that the addition for A.Y 2005-06 was confirmed by the CIT(A) and decision of the Tribunal has not been accepted by the Revenue.
b. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in relying on the decision of the Tribunal where it was held that the tenant is protected tenant and that Maharashtra Rent Control Act 1999 is applicable to the property, without appreciating facts that assessee is receiving rent more than the standard rent fixed by the Municipal Corporation and therefore, the property is outside the purview of Maharashtra Rent Control Act 1999.
c. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in relying on the Tribunal decision where the acts that the transaction between assessee and tenants is inflacted by the 3 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) reason of extraneous consideration an ALV fixed by the Municipal limit is not binding upon the Assessing Officer in determining the ALV of the property."
4. The facts of the case in ITA No.5515/Mum/2010 are as follows:
The assessee is a company. It owned one flat in the 3rd & 4th f floor admeasuring 2521 sq. fts. in the premises known as Samudra Gaurav Apartment, Worli, Mumbai . These flat was acquired by the assessee in 1980. They had been rented out to Shri T.B.Ruia, the assessee's director for a monthly rent of Rs. 2500/- per flat under an agreement dated 14/8/200. Under the agreement the assessee was given the right to use the flat together with two covered garages and exclusive use of garden space in the premises. Later on the rights in the said flat were transferred to Smt. Asha T.Ruia, who was also the director of the Assessee.
5. The assessee declared income from house property in respect of the aforesaid flat as follows:
Particulars Rent Income(Rs) Rent received from Smt. Asha T.Rua for Flat at 30,000 Samudra Gaurav Apts., Worli Seaface. The assessee claimed statutory deduction u/s. 24 at Rs. 1,50,277/- and establishment expenses of Rs. 17,904/-. The AO was of the view that
considering size of the flat and the area where the flat was located the rent declared by the assessee was very low. In reply the assessee pointed out that under section 23(1)(a) of the Act annual value has to be determined either as per Municipal valuation or fair rent/ standard rent. The assessee pointed out that the annual value of the property as per Municipal valuation was Rs. 11,082/- and the standard rent was also 11,082/- as per the Maharashtra Rent Control Act. The assessee pointed out that since actual 4 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) rent received was much higher than the annual value as per section 23(1)(a) of the Act the actual rent received should be basis for determining the annual value of the property under section 23(1)(b) of the Act. The AO however following his own order in A.Y 2005-06 and for the reasons given in that order determined the annual value of the property at a sum of Rs. 26,62,176/-.
6. The facts of the case in ITA No.5516/Mum/2010 are as follows:
The assessee is a company. It owned two flats admeasuring 5142 sq. fts. in the premises known as Samudra Gaurav Apartment, Worli, Mumbai . These flats were acquired by the assessee in 1980. They had been rented out to Shri B.R.Ruia, the assessee's director for a monthly rent of Rs. 2500/- per flat under an agreement dated 14/8/200. Under the agreement the assessee was given the right to use the two flats together with four covered garages and exclusive use of garden space in the premises. Shri B.R.Ruia died and on his death the lease hold rights over the two flats vested in his two daughters Smt. Asha T.Ruia and Mrs. Vidhi D.Ruia, who were also the directors of the Assessee. The assessee declared income from house property in respect of the aforesaid two flats as follows:
Particulars Rent Income(Rs) Rent received from Smt. Asha T.Rua for Flat at 30,000 Samudra Gaurav Apts., Worli Seaface. Rent received from Smt. Vidhi D.Rua for Flat at 30,000 Samudra Gaurav Apts., Worli Seaface. Total 60,000
7. The assessee claimed statutory deduction u/s. 24 at Rs. 12,557/- and establishment expenses of Rs. 16,878/-. The AO was of the view that considering size of the flat and the area where the flat was located the rent declared by the assessee was very low. In reply the assessee pointed out 5 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) that under section 23(1)(a) of the Act annual value has to be determined either as per Municipal valuation or fair rent/ standard rent. The assessee pointed out that the annual value of the property as per Municipal valuation was Rs. 24,288/- and the standard rent was also 24,288/- as per the Maharashtra Rent Control Act. The assessee pointed out that since actual rent received was much higher than the annual value as per section 23(1)(a) of the Act, the actual rent received should be basis for determining the annual value of the property under section 23(1)(b) of the Act. The AO however following his own order in A.Y 2005-06 and for the reasons given in that order determined the annual value of the property at a sum of Rs.
54,29,952/-.
8. On appeals by both the assesses, the CIT(A) noticed that in A.Y 2005- 06 the Tribunal in ITA No. 696 & 697/M/09 held that the ALV as declared by the assessees based on actual rent received should be accepted.
9. Aggrieved by the orders of the CIT(A), the revenue has preferred the present appeals before the Tribunal.
10. At the time of hearing of the appeals it was accepted by the parties that the basis on which the AO made the addition in the present A.Y. and AY 05-06 was the same. The Tribunal has already considered the issue in ITA No. 696 & 697/M/09 for AY 05-06 by its order dated 26.3.2010 held as follows:
"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 6 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) 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 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 7 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) 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 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. 8 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) 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 9 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) 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 :
"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 10 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08) direct him to accept the rent offered by the assessee. In view of this ground No.1 is 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."
11. In view of the aforesaid order of the Tribunal in Assesse's own case, we are of the view that there is no merit in these appeals by the Revenue. Consequently, we confirm the orders of the CIT(A) and dismiss the appeals by the Revenue.
12. In the result, the appeals by the Revenue are dismissed.
Order pronounced in the open court on the 21st day of Sept., 2011.
Sd/- Sd/-
(T.R.SOOD ) (N.V.VASUDEVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated. 21st Sept.2011
11 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08)
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"D" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.
12 ITA NO.5515&5516/MUM/2010(A.Y. 2007-08)
Details Date Initials Designation
1 Draft dictated on 15/9/11 Sr.PS/PS
2 Draft Placed before author 16/9/11 Sr.PS/PS
3 Draft proposed & placed JM/AM
before the Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on Sr.PS/PS
7. File sent to the Bench Clerk Sr.PS/PS
8 Date on which the file goes to
the Head clerk
9 Date of Dispatch of order