Yusuf K Hamied, Mumbai vs Department Of Income Tax

आयकर अपील य अ धकरण "F" यायपीठ मब ंु ई म।

IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER

आयकर अपील सं./I.T.A. No.5319 /Mum/2012 ( नधारण वष / Assessment Year : 2009-2010

ACIT Central Circle - 2, बनाम/ Shri Yusuf K. Hamied, Room No. 904, Windsor Villa, Vs. Pratistha Bhavan, West Field Estate, 63, Marine Lines, Bhulabhai Desai Road, Mumbai - 400 020. Mumbai - 400 028.

थायी ले खा सं . /PAN : AAAPH 4309 K (अपीलाथ /Appellant) .. ( यथ / Respondent)

Appellant by Shri Jeetendra Kumar Respondent by : Shri D.P. Bapat

ु वाई क तार ख / Date of Hearing सन : 31-12-2014 घोषणा क तार ख /Date of Pronouncement : 21-01-2015 [

आदे श / O R D E R PER R.C. SHARMA, A.M. :

This appeal filed by the Revenue is directed against the order of ld. CIT(A) - 36, Mumbai dated 19-6-2012 for the A.Y. 2009-10 wherein the following grounds have been taken by the revenue:

"1. "On the facts an d in the c i rcu mstan ce s o f the c ase an d in l aw, the Ld. C I T ( A ) e r r e d i n d e l e t i n g t h e a d d i t i o n o f R s . 1 , 3 3 , 2 6 , 1 4 3 1 - w i t h o u t appreciating 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).

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2. 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 the existence of employer-

employee relation and not as a protected tenant.

3. On the facts an d in the c i rcu mstan ce s o f the c ase an d in l aw, the Ld. CIT(A) erred in allowing relief to the assessee without appreciating the reality after lifting corporate veil, in the case of the assessee."

3. Rival contentions have been heard and perused the records. Assssee is an individual by status. For A. Y. 2009-10, the assessee has filed its Return of Income declaring total income at Rs. 9,78,56,3601-. The assessment was later completed determining the income at Rs. 11,11,82,503/- vide order dated September 12, 2011 passed u/s 143(3) of the Act. During the year the assessee had income by way of income from Salary, House Property and from other sources. In the Assessment Order, the AO observed that the assessee is residing in a property owned by M/s. Cipla Ltd. by payment of a meager rent of Rs. 1,670/-. Therefore, in the opinion of the AO, since the property could have fetched the rent much higher than the rent paid by the assesse, the assessee had derived the benefit u/s. 17(2)(ii) of the Act. Before the A.0, it was explained that the assessee was a tenant of the property pursuant to agreement dated 23.8.1978. As per the said agreement entered into by the assessee with M/s. c1ipla Ltd., the assessee was entitled to occupy the premises as a tenant with an option to him to acquire the property at a subsequent date. The assessee was occupying the said property in pursuance of the said agreement dated 23.8.1978 and hence by virtue of the Bombay Rent Act, 1947 read with Maharashtra Rent control Act, 1999, the assessee was a protected tenant. The assessee therefore explained that the 3 ITA 5319/M/12

benefit or perquisites has to be determined considering the fact that the assessee was a tenant of the premises. It was accordingly explained that the rent in the present case has to be determined based on standard rent. Under the circumstance, no addition could have been made as there was no perquisite or benefit derived by the assessee. However the A.O. did not accept assessee's contention and determined the perquisites in respect of the rent free a c co m moda t io n a t R s. 1 , 33 , 46 ,1 8 3/ - and m a de t h e ad di ti o n of Rs. 1,33,26, 143/- after giving the credit of the rent paid by the assessee. By the impugned order, the ld. CIT(A) deleted the addition by observing as under:-

"7.0 I have considered the above submissions and the order of the AO. First, can there be a contract of employment and independent contract of tenancy between the very same parties, one in the capacity of employer - employee and the other in the capacity of landlord and a tenant. Second, is the contract of tenancy valid if the land lord agrees to sell the property to the tenant, for a predetermined consideration, on the happening of a certain event? And third, if the answer to this question is in affirmative, can the provision of Section 17(2)(11) be invoked to determine the amount of perquisite being the deemed value of the benefit at specified rate of salary to the extent it is in excess of the rent recovered from the .employee/ tenant?

On the first question, I find no legal authority or principle to deny coexistence of employer-employee relationship and landlord-tenant relationship. The separate contractual relationships can co-exist with independent terms. No law or principle can come in the way of distinct and independent contractual relationships between the very same parties. However, the moot question, in such a case, is the effect on amount chargeable to tax under the head salaries if the landlord-tenant relationship contains a covenant which could result in to conferment of benefit to the tenant beyond the terms of the tenancy. In such a case the contract of tenancy will not become invalid. In the present case, the employer, viz. CIPLA has agreed to sell the accommodation to the appellant at a pre-determined price on the termination of his employment. However, this term may be construed to confer some benefit to the employee, beyond the benefits of tenancy, if the value of the accommodation on termination of the employment were to be higher than the pre-

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determined sale price. In such a case, it may be said that the employee may obtain some benefit in that capacity as such. However, the benefit, in such a case, would accrue either at the time when the right of purchase was granted to the employee or when the right is actually exercised by the employee on the termination of his employment. In this case, the right was granted in the year 1978 and the right has not been exercised in the previous year relevant to AY 2009 - 10, being the year in appeal. I therefore, hold that no benefit beyond the landlord- tenant relationship has accrued to the appellant in the year under appeal.

So long as the term of tenancy subsist, the tenant pays the standard rent to the land lard and there are no legal grounds to evict the tenant, the tenant-employee cannot be deemed to have derived any benefit which could be charged to tax under the head salaries. Standard rent cannot be called as nominal rent, in fact it is a fair rent which is also the measure for calculating income from house property.

7.1 The last question that arises is whether, in such a case, deemed perquisite value of provision of accommodation at concessional rent can be charged to tax. In this case, the first point to be noted is that as per the terms of appointment, CIPLA was contractually bound to provide rent free accommodation to the appellant. However, the appellant did not avail of this benefit in that he paid standard rent for the accommodation. This fact is re-enforced by the receipt of HRA from CIPLA which payable only if the appellant was not provided rent free accommodation. The amount of HRA is fully taxed. In these circumstances, the provisions of Section 17(2)(11) can be invoked only if CIPLA has provided accommodation to the appellant in the capacity of the employer. In the present case, it is not so. The appellant has occupied the accommodation as a tenant of CIPLA, being the land lord of the pre mi se s . CIPLA h as n o t re c o ve re d any re n t fro m t e appe l l an t pu rs u an t to employer-employee relationship; rather CIPLA has received rent from the appellant in te rms of contract of te nancy inde pe nde nt of the contract of e mployment. The refore , I am of the conside re d vie w that the dee me d mechanism of computation of value of perquisite under section 17(2)(ii) cannot be applied to the facts of this.

7.2 As a result the addition of Rs. 1,33,26,143/- made by the A.O. u/s 17(2)(ii) is deleted."

4. We have considered the rival contention, carefully gone through the orders of authorities below and deliberated upon the judicial 5 ITA 5319/M/12

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 in law restricting the assessee to taken the house on rent by paying standard rent. Co- existence 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:-

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"

AOs findings Contentions on behalf of the appellant Para 4.4.2 of AO's order An examination of the agreement to sell The agreement is of a composite nature the property dated 23/8/1978 revealed containing the covenants of conditional that this agreement was between M/s sale of property and grant of tenancy Cipla Ltd. and the assesse for the sale of rights. 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 receive the Further it is noticed that as per this benefits of rent free accommodation from agreement, the assessee has got an the Cipla Limited as per the terms of opportunity to stay in this house by virtue appointment. There should be no of his relation with the company being its objection if the assessee elected to forgo Chairman and not in a capacity of this benefit. There is no prohibition in protected tenant. The perusal of this law for co-existence of relationship of agreement reveals that this property was employer and employee as also of landlord purchased by M/s Cipla Ltd especially for and tenant particularly if the latter the residential use of assessee. arrangement is on arms length basis on consideration of payment of standard rent. Para 3.4.4. of AO's order Since the agreement entered into by the The Rent Act in Maharashtra was earlier appellant with M/s Cipla Ltd. or for that governed by the Bombay Rent Act, 1947 matter, tenancy in favour of appellant was which has now been replaced by created prior to commencement of this

Maharashtra Rent Control Act, 1999. Act, sec. 55 does not apply to the facts of Section 55, of the Maharashtra Rent the present case. Moreover, there was no Control Act 1999 deals with the provision under 1947 Act, identical to sec. registration of tenancy agreements and 55 of MRCS, 1999. says that all the tenancy agreements after commencement of this Act must be compulsorily registered.

Para 3.4.4. of AO's order The employer-employee relationship is not Th e a bs en c e of a n y w r it t e n t e n a n c y at all denied since if the fact on record. agreement between A11/s. Cipla Ltd., and The real issue is w h eth er any assessee sh ow s that the property un accept able mot ive c o u l d be was rented to assessee only by virtue of a s c r i b e d t o t h e arrangement. In employer-employee relation with M/s. this behalf, the only gravamen of the AO Cipla Ltd. Even if we consider the other is that a prime pr o p er t y w a s giv e n on argument of assessee that in absence a n o mi n a l rent. However, while leveling of any written agreement and on the basis this a l l e g a t i o n , t h e A O h a s of oral agreement the assessee n o t considered that standard rent automatically assumes tenancy is also not cannot be held to be nominal rent correct because the assessee has been when the very same measure is also 7 ITA 5319/M/12

able to take such liberty simply because applicable f o r determination of of his relation as an employee with the municipal rateable value and owner. Otherwise it is highly unlikely that f u r t h e r , t h e attribute of primeness to such a prime property will be given to a the property b y t h e A O , b a s e d o n third person without agreement in present situation, that was writing at such a nominal rent which is t e n a n t e d w a y back in the year 1978 otherwise required to be registered as per is both unfair and unrealistic. law.

Para 3.4.4 of AO's order

In fact the agreement to sell dated 2310811978 on which the assessee is W e ar e un able t o appr eciat e as to harping, actually provides for a how a standby arrangement of temporary or intermediate occupancy cannot be consistent with arrangement of stay of assessee in the the agreement of tenancy. There is no property till the conditions in the legal basis for this view. Further, C I P L A agreement are not completed. It does has no legal grounds for not give the assessee a right as a tenant and in fact is only a standby terminating the tenancy. Even if arrangement. It is only because of the CIPLA has diluted its rights for authority and relation that the assessee eviction after the termination of enjoys with his employer that despite employment of the assessee, the of the specific agreement the same has benefits, if at all, have accrued to the not been purchased by him even after the assessee when the rights of purchase of lapse of more than 32 years. It would not have been possible for any other person the premises were granted to the but the chairman of the employer assessee in the year 1978. This company to enter in an agreement and arrangement does not negate the not complete it on his will. Had there agreement of tenancy between the been any other person staying in this assessee and CIPLA. property at such a n o m i n a l r e n t t h e o w n e r w o u l d h a v e 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 e m p l o y e r -

e m p l o y e e r e l a t i o n . T h i s 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 Section 2(24(iv) of the I.T. Act, income includes the value of only beneft or perquisite whether convertible into By t h e v ery f act t hat th e assessee money or not, obtained from a company h as paid st an dar d r en t t o CI PLA, it either by a director or by a person who can n ot be h eld th at th e assessee has substantial interest n the company, h as obt ain ed an y ben ef it wh ch 8 ITA 5319/M/12

or by a relative of director or such person, could be con sidered as in come and any sum paid by any such company un der section 2(24)(iv) of t he Act. in respect of any obligation which, but for such payment, would have been payable by director or other person aforesaid.

Therefore, the use of accommodationowned by the employer at a concessional rent shall be chargeable to tax asperquisite within the meaning of section 17(2)(ii) of the I.T. Act.

Para 3.6 of the order The assessee instead of purchasing the property (as agreed in the agrement to sale dated 23/08/1978) had preferred to Th e assessee h as not deriv ed any stay in it by paying rent. Had this ben efit act ual or n ot ion al sin ce he property beenpurchased in the name of h as paid st an dar d r en t t o CI PLA. 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 rsidentail property. The assessee has occupied ths house ostensibly for the purpose of his residence through the conmvenient medium of his employer company,. Therfore, it is evident that in the gardb of the tenancy right, the assesseehas concealed the actuakl benefit arising by using the captioned property as his residence in hs capacity of the Chairman and Managing Director.

Para 4.1 of the order The value of any concession in the matter of rent n respect of any accommodation provided to the assessee by his employer `Th e question of det ermin ing is taxable as per the provisions of section per quisit e v alue f or pr ovision of 1792)(ii) of the IT Act. accommodation at con cessional r ent bein g t h e excess of t he It has beenheld n Wilkins V Rogerson (49 specif ied r at e of salar y ov er t he ITR 395(CA) that perquisited are valued r ent recov er ed fr om th e employee, on the basis of their value to the employee w ill arise only w h er e t h e r ent is and not on the bass of cost to the r ecov er ed fr om th e employee an d employer for providing such benefit. An n ot w h en th e r en t is r eceiv ed fr om employer may own residential a ten ant un der an en f or ceable accommodation and provide it at a t enan cy agr eement ev er if th e concessional rent to his employee. t enant is also t h e employee of th e lan d lor d.

5. After considering the assessee's reply with respect to each and every aspect, the ld. CIT(A) recorded his findings that the assessee was occupying house as per the independent rent agreement for which the 9 ITA 5319/M/12

assessee was paying standard rent and no benefit accrued to the assessee in 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 ld. 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 ld. CIT(A), discussion made in the assessment order, contentions of the ld. Counsel for the assessee & Revenue, and material available on record are kept in justaposition and analyses, we find that no benefit 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 ld. CIT(A) which resulted into the deletion of addition made on account of perquisite in the hands of the assessee.

6. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 21st January, 2015 आदे श क घोषणा खलु े यायालय म दनांकः 21-01-2015 को क गई ।

Sd/- sd/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; दनांक Dated 21-01-2015 [ 10 ITA 5319/M/12

व. न.स./ RK , Sr. PS आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent.

3. आयकर आयु त(अपील) / The CIT(A) -36,, Mumbai

4. आयकर आयु त / CIT -Central 1, Mumbai

5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai F Bench

6. गाड फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

स या पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai