Assistant Commissioner of Incometax v. Dr. Prabha Sanghi

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The Tax PublishersITA No. 2217 (Del) of 2010 2013 TaxPub(DT) 0144 (Del-Trib) : (2012) 139 ITD 0504 INCOME TAX ACT, 1961 --Income from house property--Computation of ALV Vacancy allowance--Assessee was owner of there properties being A-1, A-2 and A-6. Property being house A-2 was self occupied so it did not have any ALV where as house at A-1 & A-6 was earlier given to PSUS on rent. Assessing officer invoked section 23(4)(b) and took rent received from PSUS in earlier years as ALV which was for A-6 was 12.76 lakhs and A-1 was 7 lakhs. The Commissioner (Appeals) however, applied provision of section 23(1)(c) and took ALV of AC as 'nil' and municipal standard rate of Rs. 28,620 ALV for A-1. *Held:* Accordingly to section 23(1)(c) the ALV would be computed on the basis of property let out but as assessee's property was vacant during the relevant year the ALV was to be taken as 'Nil'. It appears that there is a difference between the provisions of section 23(1)(c) and those of section 23(4) thereof. However, it is not so. As per section 23(1)(c), if any part of the property was let out and was vacant during the year or any part thereof, and due to such vacancy, the annual rent received or receivable was less than the sum for which the property might reasonably be expected to let from year to year, the lesser of the two amounts, i.e., the amount received or receivable, is to be the annual value of the property. Section 23(4), on the other hand, refers to property where it consists of more than one house, as in the present case. As per this section, the annual value of such property shall be determined as if the property has been let. [Para 12] Provisions of section 23(4)(b) are very clear that where the property consists of more than one house, the annual value thereof shall be determined under section 23(1), as if such property had been let. This re-directs us to section 23(1). Applying section 23(1) to the facts of the present case, it is section 23(1)(c) which shall again come into play inasmuch as it remains undisputed, as observed hereinabove, that the property was let, but was vacant during the year, due to which vacancy, the actual rent received or receivable by the assessee in respect of such property was nil. Nil rent, then, it cannot be gainsaid, is evidently less than the sum for which the property might reasonably be expected to let from year to year. [Para 12] Provisions of section 23(4)(b) are very clear that where the property consists of more than one house, the annual value thereof shall be determined under section 23(1), as if such property had been let. This re-directs us to section 23(1). Applying section 23(1) to the facts of the present case, it is section 23(1)(c) which shall again come into play inasmuch as it remains undisputed, as observed hereinabove, that the property was let, but was vacant during the year, due to which vacancy, the actual rent received or receivable by the assessee in respect of such property was nil. Nil rent, then, it cannot be gainsaid, is evidently less than the sum for which the property might reasonably be expected to let from year to year. [Para 13] On this score itself, the grievance of the department loses whatever force it could have had, if any. [Para 14] Section 23(4), it makes reference to 'property referred to in sub-section (2)' of section 23. Section 23(2) talks of 'the property' and the only difference is that whereas section 23(2) talks of a house or a part of a house and section 23(4) considers property consisting of more than one house. As per section 23(4)(a), the concession will be available to the assessee only with regard to one of the houses constituting the property and the ALV of the remaining houses shall have to be determined, in case, all the houses are in the occupation of the assessee. In the present facts, this is not the case and the two houses, as discussed, were let earlier, but were lying vacant during the year. As such, section 23(4)(a) is not applicable. [Para 15] Section 23(4)(b) is applicable, as considered, and it leads back to section 23(1). So the situation is back to square one. [Para 16] Undoubtedly, it was to cure the inequity of taxing vacant properties under a notional charge, that section 23(1)(c) was brought on the statute book by virtue of the Finance Act of 2001 with effect from 1-4-2002, as rightly contended on behalf of the assessee, in order to provide simplified determination of annual value of property on allowing deductions in computing the ALV itself on account of vacancy and unrealized rent. [Para 17] Thus, looked at from any angle, it is the provisions of section 23(1)(c) of the Act which are applicable hereto and none other. Accordingly, the Commissioner (Appeals) was correct in applying the said section to the present case. [Para 18] For the above discussion, finding no merit in the grounds taken by the department, the same are rejected. [Para 18] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 2217 (Del) of 2010
2013 TaxPub(DT) 0144 (Del-Trib) : (2012) 139 ITD 0504

INCOME TAX ACT, 1961

--Income from house property--Computation of ALV Vacancy allowance--Assessee was owner of there properties being A-1, A-2 and A-6. Property being house A-2 was self occupied so it did not have any ALV where as house at A-1 & A-6 was earlier given to PSUS on rent. Assessing officer invoked section 23(4)(b) and took rent received from PSUS in earlier years as ALV which was for A-6 was 12.76 lakhs and A-1 was 7 lakhs. The Commissioner (Appeals) however, applied provision of section 23(1)(c) and took ALV of AC as 'nil' and municipal standard rate of Rs. 28,620 ALV for A-1. Held: Accordingly to section 23(1)(c) the ALV would be computed on the basis of property let out but as assessee's property was vacant during the relevant year the ALV was to be taken as 'Nil'.

It appears that there is a difference between the provisions of section 23(1)(c) and those of section 23(4) thereof. However, it is not so. As per section 23(1)(c), if any part of the property was let out and was vacant during the year or any part thereof, and due to such vacancy, the annual rent received or receivable was less than the sum for which the property might reasonably be expected to let from year to year, the lesser of the two amounts, i.e., the amount received or receivable, is to be the annual value of the property. Section 23(4), on the other hand, refers to property where it consists of more than one house, as in the present case. As per this section, the annual value of such property shall be determined as if the property has been let. [Para 12] Provisions of section 23(4)(b) are very clear that where the property consists of more than one house, the annual value thereof shall be determined under section 23(1), as if such property had been let. This re-directs us to section 23(1). Applying section 23(1) to the facts of the present case, it is section 23(1)(c) which shall again come into play inasmuch as it remains undisputed, as observed hereinabove, that the property was let, but was vacant during the year, due to which vacancy, the actual rent received or receivable by the assessee in respect of such property was nil. Nil rent, then, it cannot be gainsaid, is evidently less than the sum for which the property might reasonably be expected to let from year to year. [Para 12] Provisions of section 23(4)(b) are very clear that where the property consists of more than one house, the annual value thereof shall be determined under section 23(1), as if such property had been let. This re-directs us to section 23(1). Applying section 23(1) to the facts of the present case, it is section 23(1)(c) which shall again come into play inasmuch as it remains undisputed, as observed hereinabove, that the property was let, but was vacant during the year, due to which vacancy, the actual rent received or receivable by the assessee in respect of such property was nil. Nil rent, then, it cannot be gainsaid, is evidently less than the sum for which the property might reasonably be expected to let from year to year. [Para 13] On this score itself, the grievance of the department loses whatever force it could have had, if any. [Para 14] Section 23(4), it makes reference to 'property referred to in sub-section (2)' of section 23. Section 23(2) talks of 'the property' and the only difference is that whereas section 23(2) talks of a house or a part of a house and section 23(4) considers property consisting of more than one house. As per section 23(4)(a), the concession will be available to the assessee only with regard to one of the houses constituting the property and the ALV of the remaining houses shall have to be determined, in case, all the houses are in the occupation of the assessee. In the present facts, this is not the case and the two houses, as discussed, were let earlier, but were lying vacant during the year. As such, section 23(4)(a) is not applicable. [Para 15] Section 23(4)(b) is applicable, as considered, and it leads back to section 23(1). So the situation is back to square one. [Para 16] Undoubtedly, it was to cure the inequity of taxing vacant properties under a notional charge, that section 23(1)(c) was brought on the statute book by virtue of the Finance Act of 2001 with effect from 1-4-2002, as rightly contended on behalf of the assessee, in order to provide simplified determination of annual value of property on allowing deductions in computing the ALV itself on account of vacancy and unrealized rent. [Para 17] Thus, looked at from any angle, it is the provisions of section 23(1)(c) of the Act which are applicable hereto and none other. Accordingly, the Commissioner (Appeals) was correct in applying the said section to the present case. [Para 18] For the above discussion, finding no merit in the grounds taken by the department, the same are rejected. [Para 18]