Taxpublishers.in - InterestingDecision/Flash_188.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 254 Views


Tax Publishers Bharat K. Sheth v. DCIT [I.T.A. No. 2140/Mum/2002, I.T.A. Nos. 1527, 1235/Mum/2005, I.T.A. No. 2822/Mum/2006, I.T.A. Nos. 2746-2749/Mum/2012, I.T.A. No. 8547/Mum/2010, I.T.A. No. 2251-2253/Mum/2018, I.T.A. No. 4648/Mum/2015, dt. 17-12-2020] : 2020 TaxPub(DT) 5493 (Mum-Trib) Notional interest on interest free deposit taxability thereof under income from house property under section 23(1)(a) in a sale and leaseback arrangement *Facts:* Assessee a resident individual acquired a property and then leased it back to the said seller under a leave and licence agreement with a monthly licence fees of Rs. 5000 which was offered to income under house property. Bereft this the assessee was found to have taken interest free deposit of Rs. 3 crores from the seller. The assessing officer's stand was that the monthly rent of Rs. 5000 was almost akin to the total municipal taxes thus there was no annual rent from the leased property, there ought to have been an imputed interest on the deposit taken under test of reasonableness thus took 12% p.a. of the deposit as the annual rental value of the house property and taxed the same. On appeal the Commissioner (Appeals) took a stand against the law thus - since there is no provision to tax the notional rent as house property income under the act in which case the standard rent as per the rent control act alone can be taken as the annual rental value, this principle was incorrect given the large interest free deposit taken; hence the assessing officer was instructed to determine the annual rental value on fair basis considering market realities. On higher appeal by both revenue and by the assessee with the assessee challenging the notional interest addition under house property and the revenue against remanding the case to the assessing officer. Held in favour of the assessee that on facts when the sale and lease back was done the department denied reinvestment benefit of section 54F to the assessee citing the entire sale and lease back to be a colourable transaction. This was decided in favour of the assessee by the ITAT who held that the assessee's sale and lease back was a genuine one and thus was eligible for reinvestment benefit under section 54F. Besides this in the said earlier assessment year case of the assessee it was also confirmed that there could be no notional addition of interest as house property income on the said deposit, which was applied here in. The rental was to be the standard rent as per the applicable law. The applicability of rent control act has not been denied by the assessee either.

Tax Publishers

Bharat K. Sheth v. DCIT [I.T.A. No. 2140/Mum/2002, I.T.A. Nos. 1527, 1235/Mum/2005, I.T.A. No. 2822/Mum/2006, I.T.A. Nos. 2746-2749/Mum/2012, I.T.A. No. 8547/Mum/2010, I.T.A. No. 2251-2253/Mum/2018, I.T.A. No. 4648/Mum/2015, dt. 17-12-2020] : 2020 TaxPub(DT) 5493 (Mum-Trib)

Notional interest on interest free deposit taxability thereof under income from house property under section 23(1)(a) in a sale and leaseback arrangement

Facts:

Assessee a resident individual acquired a property and then leased it back to the said seller under a leave and licence agreement with a monthly licence fees of Rs. 5000 which was offered to income under house property. Bereft this the assessee was found to have taken interest free deposit of Rs. 3 crores from the seller. The assessing officer's stand was that the monthly rent of Rs. 5000 was almost akin to the total municipal taxes thus there was no annual rent from the leased property, there ought to have been an imputed interest on the deposit taken under test of reasonableness thus took 12% p.a. of the deposit as the annual rental value of the house property and taxed the same. On appeal the Commissioner (Appeals) took a stand against the law thus - since there is no provision to tax the notional rent as house property income under the act in which case the standard rent as per the rent control act alone can be taken as the annual rental value, this principle was incorrect given the large interest free deposit taken; hence the assessing officer was instructed to determine the annual rental value on fair basis considering market realities. On higher appeal by both revenue and by the assessee with the assessee challenging the notional interest addition under house property and the revenue against remanding the case to the assessing officer.

Held in favour of the assessee that on facts when the sale and lease back was done the department denied reinvestment benefit of section 54F to the assessee citing the entire sale and lease back to be a colourable transaction. This was decided in favour of the assessee by the ITAT who held that the assessee's sale and lease back was a genuine one and thus was eligible for reinvestment benefit under section 54F. Besides this in the said earlier assessment year case of the assessee it was also confirmed that there could be no notional addition of interest as house property income on the said deposit, which was applied here in. The rental was to be the standard rent as per the applicable law. The applicability of rent control act has not been denied by the assessee either.