TMI Blog2006 (6) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from salary disclosed in the returns for each of these two years. Thus, assessee filed return for the assessment year 200001, declaring an income of Rs. 96,900, after setting off loss from house property computed at Rs. 90,250 against income from salary of Rs. 1,87,146. Rejecting the assessee's claim for loss from house property of Rs. 90,250, the Assessing Officer determined the total income of the assessee at Rs. 1,87,146. Similarly, for the succeeding assessment year, viz. 2001-02, though the original return filed by the assessee on 31-7-2001, claiming similar loss was accepted under section 143(1)(a), subsequently a notice under section 148 was issued, and thereafter, assessment was completed under section 143(3) on 29-3-2004, rejecting the assessee's claim for loss from house pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained 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 the Revenue which is based on presumptions and conjectures. 4. On the other hand, the learned Departmental Representative countered, to say in brief, by defending the orders impugned herein, besides pointing out that the assessee has only adopted a device by letting out the property at high rent for one day of each of the years under appeal, and taking it as a base for arriving at the annual value, not for the purposes of offering the same to tax, but for claiming higher vacancy allowance for the remaining days of the year. 5.1 Rival submissions heard and relevant orders read, besides going through the concerned papers filed on record. After doing so, unlike in the stand of the assessee though stressed and stretched by the strenuous arguments of his learned counsel, I find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame 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 where the property is let, the annual rent received or receivable, whichever is higher. The provisions of section 23(1) thus stipulate certain element of estimation of rent, and prescribes assessment of such notional income, if it is higher than the income actually received. The Explanation 1 below section 23(1), extracted above, defines 'Annual Rent' as the annual value or the rent received or receivable for the whole year, if it is let out for the entire year, or in any 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 actually let out period. 5.5 In the instant case, the assessee has let out the property for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equential 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 of the sum for which the property may reasonably let or the annual rent actually received or receivable, that has to be taken as annual value assessable to tax under section 22 of the Act. As for the 'sum for which the property might reasonably let', it is a settled position of law, as approved by several High Courts, such as the Kerala High Court in the case of C.J. George v. CIT [1973] 92 ITR 137; the Calcutta High Court in CIT v. Prabhabati Bansali [1983] 141 ITR 419 the Delhi High Court in CIT v. R. Dalmia [1987] 163 ITR 525; the Madras High Court in CIT v. M R. Alagappan [1987] 164 ITR 690, referred to by the CIT(A) as well in the orders impugned herein, that value determined by the municipal authorities for assessment of property tax could be adopted. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nths 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 ----------------------------------------------------- Whole year 3,65,000 X 1 = --------------- = Rs. 1.000" 365 The above formula devised by the CIT(A) appears to be incorrect inasmuch as he arrived at the figure of Rs. 3,65,000 in the numerator in the instant case only by multiplying the rent received for one day of Rs. 1,000 with 365 days. That being so, there appears to be no logic behind putting that very figure of 365 in the denominator. For the other numerator, i.e. Period for which it is let out, since the property is let out only for one day, the figure '1' in the instant case is inconsequential. However, if it is let out for many days, the result could be anomalous and even absurd. 5.10 The assessee, in the instant case has let out the property only for one day in each of the years under appeal. The first question that arises is as to whether 'one day' can be treated as a period, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 Explanation 1 under section 23(1) would lead to absurd results, and would even amount to sanction by Legislature of the device for evasion of tax as in the instant case, by mechanical creation of loss under the head 'House property income' by letting out the property at an exorbitant rent for one day, and based on it arriving at rent for 365 days, and after claiming deduction towards repairs therefrom, claiming vacancy allowance for 364 days under section 24(ix), thus determining a loss for being set off against incomes assessable under the other heads. Thus, if the device adopted by the assessee is accepted as permissible under law, it would amount to approving interpretation which would lead to absurd results, for the following reasons- (a) An assessee, letting out the property only for one day for Rs. 1,000, stands in a better position, than a person who lets out the property for the entire year. It is so, because, if he lets out for all the 365 days at the rate of Rs. 1,000 per day, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay. Therefore, on a reasonable interpretation of the provisions of Explanation 1 to section 23(1), I am of the view that for arriving at the annual rent of a property, Explanation 1 contemplates that the property is let out at least for a period of one month. 5.13 Further, a combined reading of section 23(1)(b) and Explanation 1 thereunder, indicates that they deal with the determination of annual value of properties which are not under self occupation, but let out. The property in the instant case is let out, just for one day. The act of letting out just for one day, as against the act of keeping it vacant for 364 days, does not lend a colour of let out property. A let out property is one which is either actually let out, or remaining vacant till it is actually let out. It is the predominant use of the property either by letting out or not doing so during a year either by actual use or otherwise, whether intentionally or otherwise that determines the nature of the property. When the property, byway of a device is let out only for one day in a year, it cannot be said that the character of the property is that of a 'let out property', ignoring the predominant character of vacanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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