Kaira Can Company Ltd, Mumbai vs Assessee

This appeal by the assessee-company is directed against the order passed by CIT(A)-12, Mumbai and it pertains to A.Y. 2009-10.

2. Assessee-company, in its computation of income, showed a sum of `3,58,310/- towards income from house property. During the course of scrutiny proceedings the AO noticed that assessee-company received rent of `6 lakhs per annum on the flat situated at Apsara Co-op. Housing Society, which was given on rent to Tata Industries Ltd. Assessee-company entered into Leave & Licence agreement with Tata Industries Ltd. on 01.01.2008. The flat consists of 2880 sq.ft. (built up) area situated at Nariman Point, Mumbai. The AO noticed that in A.Y. 2006-07 the rent received by the assessee-company was shown at `2,40,000/- p.a. and the interest free deposit was shown at `2,20,00,000/- (for A.Y. 2009-10 the interest free deposit was `3 crores). In A.Y. 2006-07 the AO determined the gross annual value at `28,80,000/-. Similarly, for A.Y. 2007-08 it was determined at `38,40,000/- and for A.Y. 2008-09 at `52,80,000/-. Similarly, in this year 2 ITA No. 6268/Mum/2013 M/s. Kaira Can Company Ltd.

interest @10% p.a. on security deposit was taken into account to arrive at gross annual value at `56 lakhs and assessment was completed accordingly.

3. Aggrieved, assessee contended before the CIT(A) that adding notional interest on interest free security deposit is contrary to law and further submitted that the rent of `50,000/- per month is fair and reasonable.

4. The learned CIT(A) observed that the flat was purchased in 1996 for `1,72,80,000/- whereas the assessee had taken interest free deposit of `5 crores for letting out this flat (it was mentioned by the AO as `3 crores). Since the flat was located in a posh locality, at Nariman Point, with full amenities, the learned CIT(A) was of the opinion that monthly rent of `50,000/- can hardly be considered as market rent and therefore he concluded that fair letting value is hidden under the garb of interest free security deposit. He had also taken into consideration the interest paid by Government of India on deposits made and assumed that ordinarily such interest component should have been received by the assessee on the capital cost incurred. He had also taken into consideration several judicial pronouncements in this regard to hold that the rent disclosed by assessee is illusory and did not disclose correct annual letting value. Therefore, he confirmed the order of the AO.

5. Further aggrieved, assessee filed an appeal before the ITAT contending, inter alia, that the CIT(A) erred in confirming the action of the AO, considering the rate of interest at 10% while determining notional interest, which is adhoc and without any basis. During the course of hearing the learned counsel for the assessee placed before us copy of the order of the ITAT "A" Bench, Mumbai in assessee's own case for A.Y. 2004-05 to A.Y. 2007-08 to submit that so long as the rent received is more than the municipal rateable value notional interest should not be included while computing the income from house property and in this regard the Bench relied upon the decision of the jurisdictional High Court in the case of J.K. Investors, etc. The relevant observations of the Tribunal are extracted for ready reference: -

3 ITA No. 6268/Mum/2013 M/s. Kaira Can Company Ltd.

"6. We have heard both the parties on this issue of inclusion of notional interest income on the interest free security deposit. It is a settled proposition of law by virtue of the judgment of the Hon‟ble jurisdictional High Court in the case of J.K. Investors (Bombay) Ltd (supra) and Tip Top Typography (supra) that the notional interest should not be included while computing the income from house property under section 23(1)(a) and (b) of the Act. It is also a settled proposition that actual rent received or receivable by the land lord constitutes a reliable evidence to ascertain the properties‟ capacity to earn the rent in open market. The forms should be accepted unless the Assessing Officer has contrary evidence to suggest the deflation of rental income by extraneous consideration. This is also an admitted fact in this case that the rent received is much higher than the municipal rateable value of the property. It is also discouraged and unapproved by various Benches of the Tribunal that when the interest income earned by the assessee on the said security deposits deposited with the banks the same is offered to tax, the inclusion of such interest on the said deposits for the purpose of ALV amounts to double taxation. Considering the factual matrix of the present case, we are of the considered opinion that the issue raised by the assessee has to be decided in favour of the assessee. We order accordingly." The learned counsel for the assessee submitted that the issue stands squarely covered by the decision of the Tribunal in assessee's own case for earlier years and, even otherwise, principle of consistency applies since there is no change in the factual matrix of the case.

6. On the other hand, the learned D.R. strongly relied upon the order passed by the Tax Authorities and submitted that the so called rent received by the assessee was illusory when it is compared with the amount invested in purchase of the property and in such circumstances it would be appropriate to adopt annual letting value in the manner which was adopted by the AO/CIT(A).

7. We have considered the rival submissions and carefully perused the record. It is not in dispute that the rent received by the assessee even in this year is less than the municipal rateable value. Under identical circumstances the ITAT "A" Bench, Mumbai (in respect of A.Y. 2004-05 to A.Y. 2007-08) having decided the matter in favour of the assessee, for the sake of consistency we follow the view taken by the ITAT in assessee's own case for earlier years and hold that notional interest rate cannot be taken 4 ITA No. 6268/Mum/2013 M/s. Kaira Can Company Ltd.

into consideration for the purpose of computing annual letting value. We hold accordingly

8. In the result, appeal filed by the assessee is allowed.

Order pronounced in the open court on 17th March, 2015.

Sd/- Sd/- (Sanjay Arora) (D. Manmohan) Accountant Member Vice President

Mumbai, Dated: 17th March, 2015

Copy to:

1. The Appellant 2. The Respondent 3. The CIT(A) - 12, Mumbai 4. The CIT- 6, Mumbai City 5. The DR, "A" Bench, ITAT, Mumbai By Order

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.