Landlord takes refundable interest-free deposit from tenant – Income Tax wants to tax notional interest – Sec 23(1)(a) does not permit taxing more than rent : Delhi HC

TAXING rent from house property has always been a taxing issue for the Income Tax Department. In the latest case the Revenue wanted to tax notional interest income on refundable interest-free deposit made by the tenant with the landlord u/s 28(iv) but the High Court has dismissed the same as the relevant Section 23(1)(a) does not contemplate taxing such income. The HC also observed that in a taxing statute it would be unsafe for the Court to go beyond the letter of the law and try to read into the provision more than what is already provided for.

Brief facts of the case :

The Assessee had received interest free deposit in respect of shops given on rent. Relying on the earlier assessment for the Assessment Year 1993-94, the Assessing Officer (AO) added to the Assessee’s income notional interest on the interest free deposit at the rate of 18% simple interest per annum on the ground that by accepting the interest free deposit, a benefit had accrued to the Assessee which was chargeable to tax under Section 28(iv) of the Act.

CIT (A) deleted the same and the Tribunal upheld that. The Revenue went to the High Court which observed that,

++ Section 28(iv) is concerned with business income and is distinct and different from income from house property. It talks of the value of any benefit on perquisite, whether convertible into money or not arising from the business or the exercise of a profession;

++ it has already been decided that Section 28(iv) can be invoked only where the benefit or perquisite is other than cash and that the term benefit or amenity or perquisite cannot relate to cash payments.

++ Section 23(1)(a) is relevant for determining the income from house property. This contemplates the possible rent that the property might fetch and not certainly the interest in fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such property;

++ It must be remembered that in a taxing statute it would be unsafe for the Court to go beyond the letter of the law and try to read into the provision more than what is already provided for;

++ The attempt by learned counsel for the Revenue to draw an analogy from the Wealth Tax Act, 1957 is also to no avail. It is an admitted position that there is a specific provision in the Wealth Tax Act which provides for considering of a notional interest whereas Section 23(1)(a) contains no such specific provision.

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