ORDER
Mukul Shrawat, Judicial Member.
Both these appeals have been filed by the assessee arising out of two separate orders of Commissioner (Appeals) XXXII, Mumbai both dated 22-6-1999 pertaining to the assessment year 1994-95. Issue raised in both the appeals as per grounds of appeal are identical, hence these appeals are consolidated and hereby decided by this common order. The substantive ground reads as follows
I. The Commissioner (Appeals) XXXII has erred in :-
(i) confirming the treatment given by the Asstt. Commissioner of Income-tax, Special Circle 81(1), Mumbai to the payment of Rs. 2,37,370 (Smt. K.D. Ambani Rs. 1,69,212) made by the tenant on behalf of the appellant, as the income of the appellant and thereby confirming the income from property at Rs. 2,31,997 (Smt. K.D. Ambani Rs. 1,77,282 as against the income of Rs. 48,000 (Smt. K.D. Ambani Rs. 48,000) shown in the return of income.
(ii) Disregarding the clear provisions of section 23(1)(b) of the Income Tax Act, 1961, which defines rent as under:-
The annual value of the property shall be:
(a) the sum for which 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.
II. In the alternative and without prejudice to the above the appellant submits that the sum of Rs. 2,37,370 (Smt. K.D. Ambani Rs. 1,69,212) reimbursed by the tenant be treated as “Income from other sources” under section 56 of Income Tax Act instead of rent receivable under section 23 of the Income Tax Act and payment of equivalent amount to the society be allowed as deduction under section 57 of the Income Tax Act.
III. The appellant therefore prays that the income of Rs. 2,31,997 (Smt. K.D. Ambani Rs. 1,77,282) be deleted and the property income of Rs. 48,000 (Smt. K.D. Ambani Rs. 48,000) shown as per return be accepted.’
2. in brief the facts as enumerated by assessing officer 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. So the rent was declared at Rs. 60,000 per month. The dispute is in respect of the following payments made by the said tenants to the said co-operative housing society, reproduced by assessing officer as follows
S. No.
Nalure of payment
Amount (Rs.)
1.
Contribution for plumbing, rectification, painting and structural repairs
3,868
2.
Pest treatment charges
5,144
3.
Repair Fund
18,100
4.
Special contribution to structural repair as per resolution passed to special general body meeting held on 15-3-1990
60,000
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.
Mis. Charges
2,900
11.
Other outgoings
33,480
12
Taxes
7,374
Total
2,37,370
(Figures as per the file of Shri Mukesh D. Ambani)
Further the assessing officer has observed that the bills were in the name of the appellant, however, the payments were made by the sub-tenant. According to him the nature of expenditure listed above revealed that the same were incurred for repair and renovation of the said flat. Further according to assessing officer the non-occupancy charges pertained liability of the owner. One more fact has also been recorded by the assessing officer that the said flat was finally rented out to Reliance Industries. After observing all these factual findings the assessing officer was of the opinion that the said sum paid by the tenant was on behalf of the assessee, therefore, it was part of rent receivable in the hands of the assessee under section 23(1)(b) of Income Tax Act. He has also mentioned that the expenditure were capital expenditure being incurred for long-term benefit hence not entitled for any deduction as claimed under section 37 or under section 57 of Income Tax Act. The computation of annual rent as worked out by assessing officer of Rs. 2,37,370 is as under :
“The benefit of Rs. 2,37,370, arising out of payment by Averan textiles Ltd. the tenant, on behalf of the assessee is considered as Actual rent receivable under section 23(1)(b) of the IT Act and added to Rs. 60,000, the Actual rent received during the year. As taxes have been paid to the extent of Rs. 7,374, deduction of the same is given and the annual value is determined as Rs. 2,37,370 + 60,000 – 7,374 = Rs. 2,89,996.
Computation of income from house property:
Name of property
Annual value
(i)
Usha Kiran
Rs. 2,89,996
Less :
Deduction:
Under section 24(l)(I) of Income Tax Act
Rs. 57,999
For repairs = 1/5th of ALV
Income from house property as determined:
Rs. 2,31,997
Less : Income from house property as returned
Rs. 48,000
Difference by which returned income needs to be increased :
Rs. 1,83,997
(Figures as per file of Shri Mukesh D. Ambani)
3. Being aggrieved the issue was carried before the first appellate authority and after reiterating the facts as referred hereinabove Id. Commissioner (Appeals) has concluded that the reimbursement incurred by the licensee on behalf of the licensor were nothing but indirect rent paid by the licensee to the licensor. According to him as well for the purpose of calculating any rent received or receivable as per the provisions of section 23(1)(b) have to be considered hence, upheld the view of the assessing officer 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 section 23(1)(b) of Income Tax Act. He has also rejected the alternate claim in respect of the said income to be taxed under the head “Other sources” under section 56 of Income Tax Act on the ground that the rental income was earned by virtue of being the owner of the house property hence to be taxed under the head “Income from house property”.
4. We have heard the submissions of both the sides and also examined the facts as well as law applicable in the present appeal. The appellants have identically given on leave and licence their flats situated in Usha Kiran Cooperative Housing Society to a tenant known as Aveshesh Mercantile Ltd. as per terms and conditions laid down in an agreement dated 3-9-1990 on a monthly rent of Rs. 5,000. As per the statement of facts and the assessment order it is not in dispute that as per clause (8) of the said agreement, it was the responsibility of the tenant to bear all the expenses related the said tenanted property, such as maintenance of the flat, society charges, etc. so the tenant has paid the aforesaid sum to the society as maintenance charges in respect of the bills raised for the relevant period. Now the question is that whether the expenditure paid directly by the tenant to the housing society formed a part of the rent receivable in the hands of the owner in terms of section 23(1)(b) of Income Tax Act. Clause (2) of the agreement provides that the licensee shall be fully responsible for maintaining the said premises without being the licensor i.e., the appellant to cost on this account. Clause (8) has also revealed that during the period of licence the licensee shall bear or reimburse to the licensor the proportionate share in respect of the monthly outgoings payable in respect of the said premises including water and maintenance charges. In the light of these specific clauses of the agreement we have examined the provisions of section 23(1)(b) alongwith Explanation I of the said section this section provides the method for determination of annual value of property. 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 as per clause (b) where the property is let and the actual rent received or receivable by the owner is in excess of the sum referred in clause (a) the amount so received or receivable. Explanation I has defined annual rent means the actual rent received or receivable by the owner in respect of such year. In terms of the above clauses of Income Tax Act we have examined the factual aspect and have found that there is no finding by the assessing officer about any sum for which property might reasonably be expected to let from year to year. The only finding thus left is in respect of the actual rent received by the owner. On one hand it is abundantly clear that the terms of the agreement were explicit and unambiguous that the licensor was under an obligation to maintain the said premises and bear the cost of maintenance. It is also not doubted that the licensee was under obligation to reimburse the proportionate share in respect of the monthly outgoings in respect of maintenance charges etc. On the other hand, it is not clear why the said amount was treated by the assessing officer as rent receivable in the hands of the assessee specially when the expenditure were nothing but outgoings in respect of the said flat. How an expenditure can be treated as rent received by the owner is not clear from the order of the revenue authorities. Whether an expense can be treated as an income has also not been clarified by the revenue authorities. From the clauses it can be observed that the licensee had paid the said amount against or raised by the society though in the name of the owners. The assessing officer has not raised any doubt in respect of the genuineness of the bills raised. In support of the claim few case laws have also been cited. In the case of CIT v. Sathya Co. 125 Taxation 136 (Cal.), copy of the order filed, it was held that no notional interest could be added to calculate the rental income and it was also held that the presumption of assessing officer that the notional interest as integral part of rent was ultra vires the provisions of section 23 of Income Tax Act. In an another decision of CIT v. Prabutty Churn Law (1965) 57 ITR 609 (Cal.) wherein it was held that the bona fide annual value had to be determined in accordance with section 9(1)(i) and not under section 9(l)(ii). It was also held that there was no justification for adding a particular sum to the stipulated rent merely because the tenant had undertaken to bear the cost of repairs. One more case of CIT v. Smt. Nayeema Momen (1994) 73 Taxman 498 has also been cited. In all such cases the ratio laid down by the Hon’ble Courts are 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. Further in the instant appeals this fact has not been controverted that the expenditure were in respect of bills raised by the co-operative society having no element of income in the hands of the owners. Since we have taken a view that the annual value was wrongly determined by the assessing officer of the property, therefore, there is no need to adjudicate upon alternate grounds of the appeals that the expenditure incurred may be allowed under section 57 of Income Tax Act. Resultantly the main ground raised in both the appeals are hereby allowed.
In the result, both the appeals are allowed.