1993 (3) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to vacancy allowance for properties neither struck with sterility nor previously let out.
2. Entitlement to vacancy allowance or exclusion for occupancy for business purposes for properties with machines.
3. Entitlement to deduction of municipal taxes for properties not let out.
4. Taxability of income under 'Business income' versus 'Income from house property'.
5. Entitlement to deduction of excess income taxed in earlier years due to rent adjustment.
6. Entertaining additional ground regarding taxability under 'Business' instead of 'Income from property' for the assessment year 1970-71.

Detailed Analysis:

1. Entitlement to Vacancy Allowance for Properties Neither Struck with Sterility Nor Previously Let Out:
The Tribunal held that the assessee was not entitled to a vacancy allowance for properties that were neither struck with sterility nor previously let out and were always vacant. The court upheld this decision, stating that the property must have been let out during the previous year to qualify for vacancy allowance under section 24(1)(ix) of the Income-tax Act, 1961. The Supreme Court's decision in Liquidator of Mahamudabad Properties P. Ltd. v. CIT [1980] 124 ITR 31 was cited, which clarified that section 24(1)(ix) applies only if the property was let out during the previous year and was vacant for part of the year.

2. Entitlement to Vacancy Allowance or Exclusion for Occupancy for Business Purposes for Properties with Machines:
The court found that the assessee was not entitled to vacancy allowance for properties where machines were lying. The Tribunal's decision to deny this claim was upheld, as the properties were not let out during the relevant accounting year, making section 24(1)(ix) inapplicable.

3. Entitlement to Deduction of Municipal Taxes for Properties Not Let Out:
The assessee argued for the deduction of municipal taxes for properties not let out under section 23. The court referred to the Supreme Court's decision in Liquidator of Mahamudabad Properties P. Ltd. v. CIT [1980] 124 ITR 31, which held that the proviso to section 23(1) applies only if the property is in the occupation of a tenant. Thus, the Tribunal was correct in denying the deduction of municipal taxes for properties not let out.

4. Taxability of Income Under 'Business Income' Versus 'Income from House Property':
The court examined whether the income from letting out properties should be taxed as 'Business income' or 'Income from house property'. Despite the assessee's amendment to its memorandum of association to include the business of letting out properties, the court concluded that the assessee's subsequent conduct did not indicate an intention to carry on a business of letting out properties. The properties were treated as rental properties, not commercial assets, and the income was rightly taxed as 'Income from house property'. The court relied on the Supreme Court's decision in CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597, emphasizing that the intention to carry on business must be inferred from the conduct and circumstances.

5. Entitlement to Deduction of Excess Income Taxed in Earlier Years Due to Rent Adjustment:
For the assessment year 1971-72, the assessee claimed a deduction of Rs. 26,512, which was excess income taxed in earlier years due to a higher contractual rent. The court rejected this claim, stating that there was no provision in the Income-tax Act to grant such a set-off. The court referenced its earlier decision in CIT v. Bachubhai Nagindas Shah [1976] 104 ITR 551, where it was noted that such deductions are not contemplated by section 16 of the Act.

6. Entertaining Additional Ground Regarding Taxability Under 'Business' Instead of 'Income from Property' for the Assessment Year 1970-71:
The court declined to address this issue as it had already concluded that the income was rightly taxable as 'Income from house property'. Therefore, the additional ground regarding taxability under 'Business' was not entertained.

Conclusion:
The court answered all questions against the assessee and in favor of the Revenue, upholding the Tribunal's decisions on all counts. The income from letting out properties was correctly taxed as 'Income from house property', and no deductions for vacancy allowance or municipal taxes for non-let properties were allowed. The claim for set-off of excess income taxed in earlier years was also denied. The reference was disposed of accordingly, with no order as to costs.