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.