The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has granted relief to Hindi actor Saif Ali Khan from paying taxes on notional rental income from a vacant apartment in the megapolis.
Accepting the actor's plea that he could not rent out the 6,000 sqft apartment in Hicon Residency in the tony Bandra are because of certain defects in the construction, the tribunal in an August 21 order dismissed a significantly higher tax amount sought from him.
During the assessment year 2011-12, IT authorities held that Khan estimated ratable value on the lower side compared to the ratable value based on the size and location of the property.
For the property valued at Rs 11.58 crore at the time of purchase, the actor took an annual ratable rental value of Rs 4 lakh. The assessing officer adopted an annual ratable value at 7 per cent of total investment and therefore, calculated annual rental value at a little over Rs 81.08 lakh.
After standard deduction, Khan's estimated income from the vacant property was pegged at a little over Rs 5.67 lakh. The ITAT accepted that the assessee had offered only Rs 11.8 lakh as taxable rent as against Rs 50 lakh determined by the IT commissioner (appeals).
"We note that the 6,000-sqft flat was vacant in the assessment year concerned for which the assessee offered Rs 4 lakh as rent. The assessee offered Rs 11,83,723 as taxable rent as per his valuer. But the assessing officer held that Rs 56,76,172 was the taxable rent but the IT commissioner (appeals) rejected this computation.
"Khan substituted Rs 50,40,000 as reasonable rent for the flat after referring to the monthly rent of Rs 1.75 fetched by other flats in the same building. Considering this, the assessee should be granted vacancy allowance. However, the appellant agreed to pay Rs 11,83,723 in taxes for the flat," the August 21 order said while dismissing the appeal by the department.
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The order noted that Khan's view that there were certain defects in the construction of the flat under the sanctioned plan, which was to be removed before renting it out and subsequently he incurred over Rs 50 lakh to do the needed alterations.
Observing that letting out a house which is not constructed as per an approved plan cannot be forced on the assessee, the order said, "this oxygenates the assessee's claim that the premises required alteration to properly let out. Hence, the plea by the assessee cannot be said to be spurious, vexatious or frivolous.