TMI Blog1970 (7) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... there is an annual value of premises No. 3, Gun Foundry Road, Calcutta, and whether it is to be taken into account under section 22 of the Income-tax Act, 1961. The Tribunal has held that such a property is outside the scope of section 22 of the Act. The second part of the question is also plain and that is whether the Tribunal was right in disallowing the vacancy remission and other deductions in respect of the said property. It would have been better if instead of using the expression " other deductions " the Tribunal had made it clear in the question what are the specific deductions in this case because they are confined to three items : (1) the vacancy remission, (2) the municipal taxes, and (3) the insurance premium, which are claimed as statutory deductions under sections 23 and 24 of the Income-tax Act, 1961. These deductions are discussed in the order of the Income-tax Officer. The facts giving rise to this question may be stated at the outset. The assessee is a company in voluntary liquidation represented by a liquidator. The assessment year is 1962-63 for which the previous year is the calendar year 1961. The assessee filed a return of a total income on 10th December, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not let. The Appellate Assistant Commissioner finds that the assessee was always ready and willing to let this building but none could be found. He also found that the damages valued at Rs. 1,65,203 was just a little more than a year's rental and if there was some one willing to take the property on rent, the assessee would have effected the repairs immediately and let the building. The conclusion of the Appellate Assistant Commissioner was, " there is nothing in the Act calling upon the Income-tax Officer to ignore a property of this type. " His conclusion he puts in the following words : " I do not see anything in the Act which says that the property of this type should be omitted. The assessee is the owner of the property and was always willing to let the property. The bona fide annual value of the property should therefore be considered for assessment and not ignored. Secondly, even in a case where the building is under repairs the vacancy remission can be allowed on the strength of the ruling in Maharajadhiraj of Darbhanga v. Commissioner of Income-tax. " The Appellate Assistant Commissioner therefore partly allowed the appeal of the assessee and directed the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with " computation of total income " and these particular sections appear under a sub-heading under the title " income from house property " which is one of the heads of income in section 14 of the Income-tax Act, 1961. Section 22 of the Income-tax Act, 1961, reads as follows : " The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'income from house property' ". It is followed by section 23 which deals with the question how to determine annual value. The relevant portion of section 23 of the Income-tax Act, 1961, is, inter alia, as follows : " (1) For the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year : Provided that where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property are, under the law authorising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads to two conclusions. First, it is a reasonable expectation and not an actual fact. The frame of reference is " letting from year to year " and would therefore exclude considerations of long leases. The whole concept of annual value in section 23 is hypothetical tenancy as other sub-sections (2) and (3) thereof also indicate dealing with the cases where the property is in the occupation of the owner for his own residence and where the owner has only one residential house which he cannot actually occupy by reason of the condition of his employment, business or profession carried on at any other place. Even in such cases, sub-sections (2) and (3) of section 23 provide for the determination of the annual value on the basis of reasonable expectation to let from year to year. The proviso to sub-section (3) of section 23 uses such expressions as " the house is not actually let " and " no other benefit therefrom is derived by the owner " indicating thereby that Parliament in this context is considering the hypothetical tenancy by providing for cases where there is no " actual " letting. The system of deductions enunciated in section 24 of the Income-tax Act, 1961, also lead to certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was vacant ", then the assessee is entitled to deduct that part of the annual value which is proportionate in the manner as set out in this sub-clause. The language " where the property is let and was vacant during a part of the year " must be given its ordinary reasonable meaning. That means that, during a part of the year in question, the property " is let and was vacant ". But, here, under the facts, as we have already seen from the records, the property was not let during the particular year in question. Hence, that deduction for vacancy cannot arise in any event under the express provision of section 24(1)(ix) of the Income-tax Act, 1961, and the assessee is not entitled to it. Incidentally, we may also point out that requisition by the Government under the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947, under which the requisition was made in this case does not mean that the Government becomes the tenant and the owner of the property becomes the Government's landlord. In other words, that does not mean that the Government becomes a tenant paying rent to the assessee who is the owner of the property. What is plain and what the statute says i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of this reference. We shall now come to the more fundamental question raised in this reference. That question arises directly on the Tribunal's conclusion saying that the building itself is not in a habitable condition and, therefore, cannot be said to be a property which could be reasonably let out on any particular annual value and, hence, this property, No. 3, Gun Foundry Road, is outside the scope of section 22 of the Income-tax Act, 1961. While section 22 of the Income-tax Act, 1961, makes the annual value of the property chargeable to income-tax, section 23 of the Act describes how that annual value is determined and the test is " the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year ". We have already given our interpretation on this language of section 23 of the Income-tax Act, 1961. The annual value has to be found by considering a hypothetical tenancy and by considering the fact that the property is in the present condition, rebus sic stantibus. In considering this question of the sum for which the property might reasonably be expected to let from year to year it is essential to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, this very property has a certain rental value and therefore a certain annual value, though no doubt reduced, because of the conditions of the property. Theoretically, the determination of the annual value by the income-tax authorities under section 23 of the Income-tax Act, 1961, and the determination of the annual value by the municipal authorities under section 168 of the Calcutta Municipal Act, 1951, may not agree. But the municipal valuation on the same test of annual value and reasonable expectation of letting should provide at least a cogent consideration. It will be odd indeed if one finds, as we do find in the present case, that while the income-tax authorities hold that this very property has no annual value, the municipal authorities hold that it has on the very same test of annnal value and the test of being reasonably expected to let from year to year. We are therefore of the opinion that the Income-tax Tribunal has failed to take notice of the basic principle of annual value and the test provided by the law on the point. The concept of annual value of a property and the test of its being reasonably expected to let from year to year originate from the law of rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relief to the poor. But I must demur to the view that the question whether profit (by which I understand is meant pecuniary profit) can be derived from the occupation by the buyer is a criterion which determines whether the premises are rateable, and at what amount they should be assessed ; and I do not think that a building in the hands of a school board is incapable of being beneficially occupied by them, and is not so occupied because they are prohibited from deriving a pecuniary profit from its use." The learned editors of the 12th edition of Ryde on Raling sum up the position on this point at page 102 by observing as follows : " There is no objection to the phrase' struck with sterility' if it be not misapplied. " By this test, we are of the opinion that the Tribunal has misapplied this doctrine of property being " struck with sterility " in the present facts and circumstances of the case. The next relevant authority is a recent one of the English Court of Appeal in Wexler v. Playle. There also the expression was " might reasonably have been expected to let from year to year " which was being construed by the court. In fact, the whole contention there was that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are considering what might reasonably have been expected by way of rent, I would say that it would be such rent as would be payable on the basis that the landlord would then do the necessary repairs to make the flat reasonably habitable and would do such later repairs as would be reasonable in all the circumstances. I think one must assume that ordinary sensible people are dealing with the situation. I think also that consideration must be given to the class of property with which they are dealing. " Here is an authority which discussed this question of repair and a case where the window frames were bad and there were cracks in the walls and ceilings. When such a case of disrepair comes up for annual valuation under section 23 of the Income-tax Act, 1961, these principles should in our view be considered as relevant factors. Here, no relevant factors have been considered by the Tribunal. For instance, neither the terms of the requisition under the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947, nor the agreement, which the Government and the assessee signed, and its terms and clauses of repairs, and which the learned counsel, Mr. Mitter, for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swer in the light of the observations made above and for reasons already discussed. On the first part of the question we hold that the Tribunal was wrong in holding that there was no annual value of this property, No. 3, Gun Foundry Road, and that it was outside the scope of section 22 of the Income-tax Act, 1961. We hold and we are of the opinion that this property has an annual value in the facts and circumstances of the case and it should be taken into account in the light of the principles and observations we have made above. We, therefore, set aside that part of the order of the Tribunal and answer the question accordingly. The answer to the first part of the question is in the negative. The answer to the second part of the question follows from the answer to the first part of the question and is that the only deduction in the facts and circumstances of the present reference which the assessee can get is the deduction for insurance premium paid. We hold further on this part of the question that the other deductions, namely, (a) vacancy remission and (b) municipal taxes, are not permissible and the assessee is not entitled to claim them in the present reference. We answer the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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