MUKESH D. AMBANI v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2005-LL-0429-4]

Citation 2005-LL-0429-4
Appellant Name MUKESH D. AMBANI
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 29/04/2005
Assessment Year 1994-95
Judgment View Judgment
Keyword Tags co-operative housing society • income from house property • computation of income • non-occupancy charge • co-operative society • annual letting value • capital expenditure • alternative claim • notional interest • leave and licence • returned income • rental income • annual value • monthly rent • sinking fund • actual rent • annual rent • repair fund • alv
Bot Summary: Disregarding the clear provisions of s. 23(1)(b) of the IT Act, 1961, which defines rent as under : The annual value of the property shall be : the sum for which property might reasonably be expected to let from year to year, or 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 cl. K.D. Ambani Rs. 1,69,212) reimbursed by the tenant be treated as Income from other sources under s. 56 of IT Act instead of rent receivable under s. 23 of the IT Act and payment of equivalent amount to the society be allowed as deduction under s. 5 7 of the IT Act. In brief, the facts as enumerated by AO are that the appellants are owners of their respective flats in a building known as Usha Kiran, let out on leave and licence basis to M/s Aveshesh Mercantile Ltd. by Smt. Kokila D. Ambani and other appellant namely Shri Mukesh D. Ambani has let out his flat to M/s Averan Textiles Ltd. on a monthly rent of Rs. 5,000 per month. The computation of annual rent as worked out by AO of Rs. 2,3 7 ,3 7is as under : The benefit of Rs. 2,3 7 ,3 7 , arising out of payment by Averan Textiles Ltd., the tenant, on behalf of the assessee is considered as actual rent receivable under s. 23(1)(b) of the IT Act and added to Rs. 60,000, the actual rent received during the year. According to him as well for the purpose of calculating any rent received or receivable as per the provisions of s. 23(1)(b) have to be considered hence, upheld the view of the AO that the sum paid by M/s Aveshesh Mercantile Ltd., the tenant, to the housing society on behalf of the appellant was in fact rent receivable in the hands of the appellant under s. 23(1)(b) of IT Act. Explanation 1 has defined annual rent means the actual rent received or receivable by the owner in respect of such year. In all such cases the ratio laid down by the Hon ble Courts is that where the tenant has agreed to pay the maintenance charges or accepted to bear the cost of repairs the same should not be a ground for holding that the stipulated rent does not represent the annual letting value specially when there was no evidence or finding to show that the rent received was low compared with the prevailing rent for similar premises in the same locality.


MUKUL SHRAWAT, J.M. Both these appeals have been filed by assessee arising out of two separate orders of CIT(A)-XXXII, Mumbai both dt. 22nd June, 1999 pertaining to asst. yr. 1994-95. Issues raised in both appeals as per grounds of appeal are identical, hence these appeals are consolidated and hereby decided by this common order. substantive ground reads as follows : "I. CIT(A) XXXII has erred in : (i) confirming treatment given by Asstt. CIT, Special Circle-81(1), Mumbai to payment of Rs. 2,3 7 ,3 7(Smt. K.D. Ambani Rs. 1,69,212) made b y tenant on behalf of appellant, as income of appellant and thereby confirming income from property at Rs. 2,31,99 7 (Smt. K.D. Ambani Rs. 1, 77 ,282) as against income of Rs. 48,000 (Smt. K.D. Ambani Rs. 48,000) shown in return of income. (ii) Disregarding clear provisions of s. 23(1)(b) of IT Act, 1961, which defines rent as under : annual value of property shall be : (a) sum for which property might reasonably be expected to let from year to year, or (b) where property is let and annual rent received or receivable by owner in respect thereof is in excess of sum referred to in cl. (a), amount so received or receivable. II. In alternative and without prejudice to above appellant submits that sum of Rs. 2,3 7 ,3 7(Smt. K.D. Ambani Rs. 1,69,212) reimbursed by tenant be treated as Income from other sources under s. 56 of IT Act instead of rent receivable under s. 23 of IT Act and payment of equivalent amount to society be allowed as deduction under s. 5 7 of IT Act. III. appellant, therefore, prays that income of Rs. 2,31,99 7 (Smt. K.D. Ambani Rs. 1, 77 ,282) be deleted and property income of Rs. 48,000 (Smt. K.D. Ambani Rs. 48,000) shown as per return be accepted." 2 . In brief, facts as enumerated by AO are that appellants are owners of their respective flats in building known as Usha Kiran, let out on leave and licence basis to M/s Aveshesh Mercantile Ltd. by Smt. Kokila D. Ambani and other appellant namely Shri Mukesh D. Ambani has let out his flat to M/s Averan Textiles Ltd. on monthly rent of Rs. 5,000 per month. So rent was declared at Rs. 60,000 per month. dispute is in respect of following payments made by said tenants to said co-operative housing society, reproduced by AO as follows : S. Amount Nature of payment No. (Rs.) Contribution for plumbing, rectification, 1. 3,868 painting and structural repairs 2. Pest treatment charges 5,144 3. Repair fund 18,100 Special contribution to structural repair 4. as per resolution passed to special general 60,000 body meeting held on 15-3-1990 5. Terrace water proofing 4,000 6. External plaster and gunting work 5,000 7. Additional water benefit charge 34,200 8. Sinking fund 3,304 9. Non-occupancy charge 60,000 10. Misc. charges 2,900 11. Other outgoings 33,480 12. Taxes 7 ,3 7 4 2,3 7 ,3 2,3 7 ,3 Total 7 (Figures as per file of Shri Mukesh D. Ambani) Further AO has observed that bills were in name of appellant, however, payments were made by sub-tenant. According to him nature of expenditure listed above revealed that same were incurred for repair and renovation of said flat. Further according to AO non- occupancy charges pertained liability of owner. One more fact has also been recorded by AO that said flat was finally rented out to Reliance Industries. After observing all these factual findings AO was of opinion that said sum paid by tenant was on behalf of assessee, therefore, it was part of rent receivable in hands of assessee under s. 23(1)(b) of IT Act. He has also mentioned that expenditure were capital expenditure being incurred for long-term benefit, hence not entitled for any deduction as claimed under s. 3 7 or under s. 5 7 of IT Act. computation of annual rent as worked out by AO of Rs. 2,3 7 ,3 7is as under : "The benefit of Rs. 2,3 7 ,3 7 , arising out of payment by Averan Textiles Ltd., tenant, on behalf of assessee is considered as actual rent receivable under s. 23(1)(b) of IT Act and added to Rs. 60,000, actual rent received during year. As taxes have been paid to extent of Rs. 7 ,3 7 4, deduction of same is given and annual value is determined as Rs. 2,3 7 ,3 7+ 60,000 - 7 ,3 7 4 = Rs. 2,89,996. Computation of income from house property : Annual Name of property value Rs. (i) Usha Kiran 2,89,996 Less : Deduction : Rs. 5 7 Rs. 5 7 Under s. 24(1)(i) of IT Act ,999 For repairs = 1/5th of ALV Rs. Income from house property as determined 2,31,99 7 Rs. Less : Income from house property as returned : 48,000 Difference by which returned income needs to be Rs. increased : 1,83,99 7 (Figures as per file of Shri Mukesh D. Ambani) 3. Being aggrieved issue was carried before first appellate authority and after reiterating facts as referred hereinabove learned CIT(A) has concluded that reimbursement incurred by licensee on behalf of licensor WAS nothing but indirect rent paid by licensee to licensor. According to him as well for purpose of calculating any rent received or receivable as per provisions of s. 23(1)(b) have to be considered hence, upheld view of AO that sum paid by M/s Aveshesh Mercantile Ltd., tenant, to housing society on behalf of appellant was in fact rent receivable in hands of appellant under s. 23(1)(b) of IT Act. He has also rejected alternative claim in respect of said income to be taxed under head "Other sources" under s. 56 of IT Act on ground that rental income was earned by virtue of being owner of house property hence to be taxed under head "Income from house property". 4. We have heard submissions of both sides and also examined facts as well as law applicable in present appeal. appellants have identically given on leave and licence their flats situated in Usha Kiran Co- operative Housing Society to tenant known as Aveshesh Mercantile Ltd. as per terms and conditions laid down in agreement dt. 3rd Sept., 1990 on monthly rent of Rs. 5,000. As per statement of facts and assessment order it is not in dispute that as per cl. (8) of said agreement, it was responsibility of tenant to bear all expenses related to said tenanted property, such as maintenance of flat, society charges, etc. so tenant has paid aforesaid sum to society as maintenance charges in respect of bills raised for relevant period. Now question is that whether expenditure paid directly by tenant to housing society formed part of rent receivable in hands of owner in terms of s. 23(1)(b) of IT Act. Clause (2) of agreement provides that licensee shall be fully responsible for maintaining said premises without being licensor, i.e., appellant to cost on this account. Clause (8) has also revealed that during period of licence licensee shall bear or reimburse to licensor proportionate share in respect of monthly outgoings payable in respect of said premises including water and maintenance charges. In light of these specific clauses of agreement we have examined provisions of s. 23(1)(b) along with Expln. 1 of said section. This section provides method for determination of annual value of property. annual value of any property shall be deemed to be, (a) sum for which property might reasonably be expected to let from year to year or as per cl. (b) where property is let and actual rent received or receivable by owner is in excess of sum referred in cl. (a) amount so received or receivable. Explanation 1 has defined annual rent means actual rent received or receivable by owner in respect of such year. In terms of above clauses of IT Act we have examined factual aspect and have found that there is no finding by AO about any sum for which property might reasonably be expected to let from year to year. only finding thus left is in respect of actual rent received by owner. On one hand, it is abundantly clear that terms of agreement were explicit and unambiguous that licensor was under obligation to maintain said premises and bear cost of maintenance. It is also not doubted that licensee was under obligation to reimburse proportionate share in respect of monthly outgoings in respect of maintenance charges, etc. On other hand, it is not clear why said amount was treated by AO as rent receivable in hands of assessee specially when expenditure were nothing but outgoings in respect of said flat. How expenditure can be treated as rent received by owner is not clear from order of Revenue authorities. Whether expense can be treated as income has also not been clarified by Revenue authorities. From clauses it can be observed that licensee had paid said amount against or raised by society though in names of owners. AO has not raised any doubt in respect of genuineness of bills raised. In support of claim few case laws have also been cited. In case ofCIT vs. Sathya Co. 125 Taxation 136 (Cal), copy of order filed, it was held that no notional interest could be added to calculate rental income and it was also held that presumption of AO that notional interest was integral part of rent wasultra viresthe provisions of s. 23 of IT Act. In another decision ofCIT vs. Prabutty Churn Law (1965) 5 7 ITR 609 (Cal)wherein it was held that thebona fideannual value had to be determined in accordance with s. 9(1)(i) and not under s. 9(1)(ii). It was also held that there was no justification for adding particular sum to stipulated rent merely because tenant had undertaken to bear cost of repairs. One more case ofCIT vs. Smt. Nayeema Momen (1994) 7 3 Taxman 498 (Cal)has also been cited. In all such cases ratio laid down by Hon ble Courts is that where tenant has agreed to pay maintenance charges or accepted to bear cost of repairs same should not be ground for holding that stipulated rent does not represent annual letting value specially when there was no evidence or finding to show that rent received was low compared with prevailing rent for similar premises in same locality. Further in instant appeals this fact has not been controverted that expenditure were in respect of bills raised by co-operative society having no element of income in hands of owners. Since we have taken view that annual value was wrongly determined by AO of property, therefore, there is no need to adjudicate upon alternative grounds of appeals that expenditure incurred may be allowed under s. 5 7 of IT Act. Resultantly, main grounds raised in both appeals are hereby allowed. In result, both appeals are allowed. *** MUKESH D. AMBANI v. ASSISTANT COMMISSIONER OF INCOME TAX
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