9911796707
TMI Blog2006 (6) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... "Annual Value Rs.3,65,000 Less: 1/4th for repairs Rs.91,250 Less: Vacancy Allowance Rs.3,64,000 Rs.4,55,250 -------------- ------------ Loss Rs. 90,250" ------------ Such loss was sought to be set off against the other incomes, viz. income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 3. Learned counsel for the assessee submitted in common that: In terms of Explanation 1 (b) below section 23(1), as it stood prior to 1-4-2003, the rent received for one day in each of the previous years relevant for the assessee for the years under appeal, correctly formed the basis for arriving at the Annual Value of Rs. 3,65,000. This being in excess than the value of Rs. 2,068 arrived at under section 23(1)(a), and since it is higher of the two values which have to be mandatorily taken as annual value of the house property under section 23(1) and (b) of the Act, rejection of the claim for loss is not justified. The provisions of section 23(1), more particularly the Explanation thereunder, relevant for the years under appeal, which came into effect from 1-4-1976, as explained by CBDT Circular No. 204, dated 24-7-1976 has to be given complete effect. The orders of the lower authorities, being inconsistent with these provisions of law and the instructions of the CBDT, are liable to be set aside. The advantages given by the statute cannot be taken away, and hence the entitled deduction claimed by the assessee for the years under appeal may be given, by rejecting the stand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred in clause (a), the amount so received or so receivable;" The term 'annual rent' in clause (b) of section 23(1) above, is defined in Explanation 1 which reads as under- "Explanation 1: For the purposes of this sub-section, 'annual rent' means - (a) in case where the property is let throughout the previous year the actual rent received or receivable by the owner in respect of such year; and (b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period." 5.4 From the above provisions, it is clear that what is taxable as income from house property under section 22 is the annual value, which is either the sum for which the property might reasonably be expected to let from year to year, or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the transaction. But, even if genuine, the circumstances of the case and ultimate claim of loss under the head 'House property', year after year, by claiming receipt of rent for only one day in each year interpolating it for arriving at the annual rent of the year, only to ultimately claim higher figures of deduction towards repairs and vacancy allowance, expose the device adopted by the assessee by entering into transactions of made up nature. The question for consideration before me is as to whether such a device comes within the framework of tax planning permissible under law or assumes the character of a colourable device to evade tax. 5.7 For this purpose, we may examine as to whether the claims of higher annual value in terms of section 23(1), consequential higher deductions in the form of repairs and vacancy allowance, consequent determination of a figure of loss under the head 'Income from house property' and ultimate benefit in the form of taxes on incomes from other heads on account of set off of such loss under the head 'House property' against incomes determined under other heads, are permissible in law. As per section 23(1) of the Act, it is broadly the higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of such year; and (b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period." The above definition speaks of annual rent in respect of two kinds of properties, i.e. one which is let out throughout the previous year; and others which are not let out throughout the year. As the property is not let out throughout the year, the instant case of the assessee falls under clause (b), i.e. 'in any other case' as stated in the said Explanation, and as such, annual rent would have to be worked out in the same proportion to the amount of the actual rent received, as the period of twelve months bears to such actually let out period. The formula derived by the CIT(A) on the basis of this clause is as follows- Actual Rent received/receivable for the whole year X Period for which it is let out ----------------------------------------------------- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee desires to apply a multiple of 365 to arrive at the annual rent, which according to me, is not permissible, giving a reasonable interpretation of clause (b) of the above Explanation. If there was no reasonable multiple at all in contemplation of the legislation, while bringing the Explanation 1 under section 23(1) on the statute book, then the concluding words should have been a year or 365 days, and not 12 months. Since a higher multiple would only result in determination of higher annual rent, for being adopted as annual value under the head 'Income from house property', it could equally be argued that there was no need to think that only a reasonable multiple for arriving at the amount chargeable to tax was contemplated by the statute. However, as the deduction by way of vacancy allowance provided under section 24(ix) would set off any enhancement in the annual rent and annual value, by a matching figure of deduction, the assessee would stand to gain to an unreasonable extent by way of deduction towards repairs worked out at 1/4th of the pitched up annual value thus determined, if an unreasonable multiple is allowed to be adopted. 5.12 Any other interpretation of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 7,30,000 Less 1/4th for repairs 1,82,500 Less Vacancy Allowance 7,28,000 9,10,500 ---------- ---------- Loss 1,80,500 ---------- (c) As this loss can be set off against income from other heads and there would be substantial relief in the matter of tax on the incomes disclosed under other heads, any ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
