Woodland Associates (P.) Ltd. v ITO [ITA No. 5031 (Mum.) of 2011] Mumbai ITAT Background: Assessee during the year had credited the sum of Rs. 4,52,000/- on account of rent. The flats had been let out to Ms. Rekha Jalan, Managing Director of the company for a sum of Rs. 26,000/- per month and Ms. Snehal Jalan who is her daughter at a monthly rent of Rs. 12,000/-. Ms. Rekha Jalan held 81.71% shares in the company whereas Ms. Snehal Jalan held 13.33% shares. The assessee had declared income from property as business income and the actual rent received had been shown as annual value. The property had been held as a business asset and as per memorandum of association, it was business of the company to let out properties. The AO stated that leasing out the property could not be considered as trade or commerce. AO referred to the judgment of Hon’ble Supreme Court in the case of Shambhu Investments (P.) Ltd. v. CIT  263 ITR 143/129 Taxman 70. He, therefore, assessed the rental income under the head “house property”. As regards the fair rental value, the AO contended that letting out the flats to the persons who were controlling the company was only an arrangement to reduce tax. AO after analyzing the comparative rates observed that the average rent charged in respect of similar flat in the same society was 125 per sq.ft. According to the AO, annual value which is defined as sum for which property may be let out from year to year would be the fair rent available in the market. CIT(A) held that the property was covered under Maharashtra Rent Control Act, 1999 and, therefore, Annual letable value had to be taken as standard rent and therefore, the AO was not justified in taking the market rent.