Case Law Details
Kusum Lata Jain Vs ACIT (ITAT DELHI)
In the instant case, the property was not occupied by the owner and therefore, provision of section 23(2)(a) was not applicable. The provision of section 23(2)(b) was also not applicable, as the owner of the property was not staying at other place due to his employment, business or profession carried out at other place. In the circumstances, the assessee was not allowed to avail benefit of section 23(2), irrespective of the fact whether the property was residential or commercial.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the assessee is directed against order dated 15/06/2012 of learned Commissioner of Income-tax (Appeals)-XXXI, New Delhi [in short ‘the CIT-(A)’] for assessment year 2007-08 raising following grounds:
“1.1 That CIT(A) should have deleted the addition of Rs. 33,06,240/- made on account of Notional income from House property from a house kept vacant for self occupation.
1.2 That CIT(A) has erred in confirming the presumption made by the Assessing Officer that the property was a commercial property in AY 2007-08 on the basis of conversion charges paid in March, 2008, a subsequent year, in accordance to the Master Plan, 2008.
1.3 The learned AO has made a presumption of monthly rent of Rs.200
per SFT, without bringing on record any evidence for such a rental as well as presuming it to be on a plot of 600 square meters, when the actual size is 160 square meters.
1.4 The learned CIT(A) has similarly made a presumption of monthly rent of Rs.1,80,000/- or yearly rent of Rs.21,60,000/- without bringing on record any evidence for such a rental especially when the ALV for Municipal taxes even on commercial basis after conversion is just Rs. 3,56,864/-.”
2. That the above grounds are independent and without prejudice to each other.
3. That the appellant seek leave to add, amend, alter or abandon any of the above grounds at the time of hearing of the appeal.
2. The facts in brief of the case are that the assessee, an individual filed return of income on 31/07/2008 declaring total income of Rs.91,333/-and agriculture income of Rs.62,235/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and complied with. During the assessment proceeding, the Assessing Officer observed that the assessee owned a house property at plot No. 37, Nishant Kunj, Pitampura, Delhi -110034 having municipal No. 1316. On the basis of the affidavit filed by the assessee before the municipal authorities for conversion of use of the property from residential to commercial, the Assessing Officer took the total built-up area of the property as 600 m² and converted the same into square feet and after multiplying rental rate of Rs.200 per square feet i.e. a sum for which the property might reasonably be expected to let from year to year, computed the monthly rent of the property at Rs.3,93,600/-. The Assessing Officer multiplied the monthly rent with 12 months and computed the Annual Lettable Value (ALV) at Rs.47,23,200/- and after allowing deduction at the rate of 30% under section 24 of the Act, an addition of Rs.33,06,240/- was made under the head house property. On perusal of the property tax return and municipal record, the Ld. CIT-A was of the view that property was falling under ‘D’ category as per municipal categorization. The ld. CIT-(A), took the area per floor at 139 m², as recorded in the property tax return, which he converted into square feet as 1400 ft.². The Ld. CIT-(A) estimated the average rent per floor at Rs.60,000 per month, and determined the monthly rental for the whole building at Rs.1,80,000/-. The Ld. CIT-(A) considered the rent of basement at nil. In this manner, he computed Gross ALV of the property at Rs. (1,80,000X12 = 21,60,000/-) and after allowing house tax payment of Rs.42,829/- net ALV was arrived at Rs.21,17,180/-. The Ld. CIT-A, further allowed 30% standard deduction on the Net ALV and computed the “income from the house property”at Rs.14,82,026/-. The assessee, not satisfied with the finding of the Ld. CIT-(A), is in appeal before the Tribunal raising the grounds as above.
3. In the ground No.1.1, the assessee has raised the issue that house property under consideration was house kept vacant for self occupation, and therefore the notional income computed should be deleted.
4. The Ld. counsel of the assessee supporting the ground submitted that the assessee and spouse stayed with their married son but retained residential house for self occupation in case of any unforeseen and unfortunate strain in relations. The house property remained vacant throughout the year and there was no tenant using the premises. The Ld. counsel submitted that according to the provisions of section 23(2) of the Act the assessee was allowed to retain one house for self occupation.
5. The Ld. Senior DR supported the finding of the lower authorities and submitted that the assessee in the affidavit submitted to the municipal Corporation of Delhi for conversion of the property has deposed that assessee was running a retail shop/commercial unit of 600 m² built-up area in the name and style of “Kusum Lata Jain & Sons”.
Thus, according to the Ld. Senior DR, the property was a commercial property and not residential.
6. We have heard the rival submission and perused the relevant material on record. The Ld. counsel of the assessee has contested that the assessee was entitled for the benefit of the section 23(2) of the Act, therefore it is relevant for us to reproduce the said section of the Act as under:
“Annual value how determined.
23. (1) …………………………………
(2) Where the property consists of a house or part of a house which—
(a) is in the occupation of the owner for the purposes of his own residence; or
(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,
the annual value of such house or part of the house shall be taken to be nil.”
7. Thus the annual value of a house could be taken as nil only when either the house is occupied for own residence or could not be occupied by the owner, if he is residing in a building not owned by him at other place due to his employment, business or profession carried out at other place.
8. In the instant case, the property was not occupied by the owner and therefore, provision of section 23(2)(a) of the Act are not applicable. The provision of section 23(2)(b) of the Act are also not applicable, as the owner of the property was not staying at other place due to his employment, business or profession carried out at other place. In the circumstances, the assessee was not allowed to avail benefit of section 23(2) of the Act, irrespective of the fact whether the property was residential or commercial. Accordingly, the ground No. 1.1 of the appeal is dismissed.
9. In ground No.1.2, the assessee has challenged the finding of the CIT-(A), that it was a commercial property in the year under consideration, on the basis of conversion charges paid in March 2008, in a subsequent year. In ground No.1.3, the assessee has challenged the finding of the Assessing Officer of adopting monthly rent Rs.200 per square feet and presuming the property to be on the plot of 600 m²as against actual size of 160 m². In ground No.1.4 the assessee has challenged the ALV of Rs. 21,60,000/-for the property estimated by the Ld. CIT-A as against ALV for municipal taxes even on commercial basis after conversion, was just about Rs.3,56,864/-. All the three grounds are connected with the estimation of ALV thus, same were heard together.
10. The ld. counsel of the assessee referred to the copy the affidavit filed by the assessee before the municipal Corporation in relation to conversion of the property from residential to commercial use. The ld. counsel submitted that said affidavit was filed on 29/06/2007 i.e period corresponding to subsequent assessment year and therefore, the clause (2) of the affidavit should be read as the assessee was running a retail shop/commercial unit may be from beginning of that financial year, which starts from 01/04/2007. The clause (2) cannot be have meaning that assessee was running a shop/commercial unit in years earlier to the year in which the affidavit was submitted. Thus, the ld. counsel submitted that in the year under consideration the property was residential and it was converted for mixed use i.e. commercial as well as residential in the year subsequent to the assessment year under consideration. The Ld. counsel submitted that the rates estimated by the AO as well as the CIT(A) are arbitrary, without any basis, hence the issue of estimation of ALV might be restored to the Assessing Officer.
11. Senior DR, on the other hand, supported the finding of the Ld. CIT-(A) and submitted that the property in question was commercial in the year under consideration.
12. We have heard the rival submission and perused the relevant material on record. The Assessing Officer took the constructed area of the property at 600 m²as is mentioned in the affidavit filed by the assessee before the Municipal Corporation of Delhi. The contention of the Ld. counsel of the assessee that the Assessing Officer took the area of the plot as 600 square meter, is in our opinion, not correct. The Assessing Officer has taken constructed area of four floors on the plot as 600 m², which was reported by the assessee itself in its affidavit. The Ld. CIT-(A) has taken the constructed area of each floor at 139 square meters, which is appearing in the property tax return filed by the assessee for financial year 2011-12 with the Municipal Corporation of Delhi, which is available on page 8 to 9 of the assessee
“1. I, Smt. Kusum Lata Jain, w/o- Shri Mahavir Prasad Jain aged 61 years r/o H-78, South Extension Part –1, New Delhi –110049 do hereby solemnly affirm and declared as under:
2. That I am running Retail shop/Commercial Unit of total 600 sq. mt. built up area in the name & style of KUSUMLATA JAIN & SONS located on Basement, Ground Floor, 1 st Floor, 2 nd Floor constructed on Plot No. 37 sitated in N ISHANT KUNJ, PITAMPURA, Delhi –1100034 having municipal No. 1316 Delhi.
3. That the said premises qualify for use as Retail shops Under Mixed Use Regulations of Master Plan for Delhi – 2021 (para 6)
4. That I hereby undertaken to pay one time cost of parking (if applicable) an annual mixed use charges.
5. That I hereby undertaken to pay annual mixed use charges every year as decided by Government of Indian from time to time before 30thJune of each calendar year till the present use continues in the said premises.
6. That I hereby undertaken to abide all conditions under which the said use has been permitted.
7. That I shall get regularized any unauthorized construction existing in the premises failing which MCD will be at liberty to take action against the unauthorized construction for which I shall not claim any rights or damage.”
13. According to the Assessing Officer the assessee has claimed that she was running a shop at plot No. 37, Nishant Kunj, Pitampura but she had not specified since when was the business being run. The Assessing Officer has further noted in the assessment order that he got enquiry conducted through inspector who visited the property on 10/11/2009 and reported that it was a commercial property and whole area was a commercial area. Accordingly, the Assessing Officer concluded that the property was a commercial one. The contention of the assessee that assessee applied for conversion of a part of the house into commercial use on 29/06/2007 to the Municipal Corporation of Delhi and filed an affidavit along with the application. According to the assessee change of use has been applied in the year subsequent to the year under consideration and therefore in the year under consideration the property was residential only and thus ALV cannot be estimated treating it as a commercial property. Before the Ld. CIT-A , as an alternative plea, the assessee submitted that municipal ALV taken for payment of house tax even as commercial property for the whole property, was only Rs.3,56,864/-, and which might be adopted for the purpose of purpose of ‘income from house property’. The assessee has not filed property tax return form for the year under consideration. The only evidence relied by the Revenue, is the affidavit of the assessee filed before the Municipal Corporation of Delhi. No other evidences as to the structure of the building of commercial nature, in relevant period has been brought on record. No evidences have been filed by the assessee for expenditure in respect of change of a structure from residential to commercial in the year under consideration. The affidavit was filed on 29/06/2007, which is corresponding to the assessment year 2008-09. In the affidavit, the assessee has claimed that she was running retail shop in the premises. No period has been specified since when the assessee was running shop. In our opinion, from this affidavit it cannot be presumed that the assessee was running retail shop in the year corresponding to the assessment year 2007-08 i.e. the assessment year in consideration. In absence of any other evidences to support that the property was commercial in the year under consideration, the contention of the Assessing Officer and Ld. CIT-A, cannot be accepted.
14. As regard to the issue of monthly rent of Rs. 200 per square feet estimated by the Assessing Officer, we find that in the assessment order, the Assessing Officer has mentioned as why the rate of Rs. 200 per square feet was taken as monthly rent of the property. The relevant finding of the Assessing Officer is reproduced as under:
“8. Inspector further conducted enquiry to ascertain the rent receivable in the area. Sri Subhash Gupta Property dealer, 35, Nishant Kunj stated that the rent paid in the area was around 250 per square feet for ground floor and 200 per square feet for first and second floor. Sri Ash wani of Kanishka Properties, 42, Nishant Kunj stated that the rent varies between 250 per square feet to 300 per square feet depending upon location of the shop. The nearby shop owner San gini Sarees had gone in agreement for the rent in 2007 and was paying rent of Rs. 1.1 lakh for a shop of 50 *24 square meters. BNB (Bag N Bag) owner Sri Harish Chaddha reported that for 9*45 square meter shop he is paying rent of Rs. 80,000/- per month. Nearby shop owner Vasundhra Jewellers was owner of property but he also told that the rent in the area was around 250 to 300 per square feet.
9. Hence it can be safely concluded that the approximate rent receivable in the area was Rs. 250 per Sq. feet, per month. Giving assessee the benefit of one year the rent receivable for the shop for the A.Y. 2006-2007 is being calculated at 200 per Sq. feet, per
10. From the above it is clear that property at 37 Nishant Kunj, Pitampura is a commercial property and no business is being run by assessee from the said property. It is also clear that neither the property is self occupies nor it is fit to be self occupied hence benefit of section 23(2) cannot be given for the said property. ……….~
15. The Ld. CIT-(A) estimated the rent of the property on the basis of the categorization of the area by the Municipal Corporation. Further, the Ld. CIT-(A) estimated an average rent of Rs 60,000 per month per floor. No rent was estimated for basement. In this manner the Ld. CIT-(A) calculated monthly rent for the whole building at Rs.1,80,000/-. The relevant finding of the Ld. CIT-A is reproduced as under:
“5.7 The fact remains that the property has become a commercial property once the convention charges are paid. The contention of the assessee that the name of the locality does not appear in the notified commercial area is not convincing since the assessee herself has paid the conversion charges. Therefore, the assessee will not be eligible to keep one property for self occupation in terms of section 23 of the income tax act. However the AO has used an estimate on rent of Rs. 200/’- sft. pm with no documentary evidence or an instance of a property fetching such a rental. The averment of the AR that such rents are not commanded even by centrally air- conditioned buildings in established commercial areas such a Connaught place, Nehru Place or Jasola Business District etc. appears to be reasonable. At the same time the alternate submission that-the Municipal ALV taken for payment of House tax even as a commercial property for the whole property at Rs. 3,56,864/- for payment of the house tax at Rs. 42,820/- appears to be low.
As evident from property tax return and municipal record the area per floor is 139 sq. meter, that is about 1400 sft. The locality Pitam Pura where the property is located comes under ‘D’ category as per municipal categorization. The best category is ‘A’ followed by ‘B’ and ‘C’. This gives an indication that probable rentals of the property cannot be the best. Considering that the area per floor is 139 sq. meter i.e. 1400 sft.’ with three floors plus basement, an average rent of Rs. 60,000/- pm per floor for three floors (with basement considered as an appendage) is considered reasonable. With this the annual letting value is computed as under:
Monthly rental for whole building Rs. 1,80,000
Annual rental for whole building Rs. 21,60,000/-
Less house tax . Rs. 42,820/-
Net rental Rs 21,17,180/-
Less 30% for repairs as statutory Rs. 6,35,154/-
Income from house property Rs. 14,82,026/-
Accordingly the notional income added is reduced to Rs. 14,82,026/- from the amount added by the Assessing Officer at Rs. 33,06,240/-“
16. In our opinion, the Ld. CIT-(A) has not held in clear terms, whether the property was residential or commercial and he has not given any basis for estimating monthly rent of Rs.1 ,80,000/-. The rent has been estimated in the ad-hoc manner, which cannot be permitted in law. In the circumstances, we feel it appropriate to restore issue to the file of the Assessing Officer to make enquiries as deemed fit and decide afresh commercial and determine the annual lettable value, for which the property could be let out in the year under consideration, on the basis of documentary evidences, like rent deed of surrounding area etc. It is needless to mention that assessee shall be afforded sufficient opportunity of hearing on the issue in dispute. Accordingly, the grounds No. 1.2 to 1.4 of the appeal are allowed for statistical purposes.
17. Grounds no. 2 & 3 being general in nature, not required to adjudicate upon.
18. In the result, appeal of the assessee is allowed partly for statistical purpose.
The decision is pronounced in the open court on 31st May, 2017.
