TMI Blog1984 (9) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... f for self-occupation 366 --------- 366 Less : One-sixth for repairs 61 Interest payable 4,149 4,230 ---------- ---------- Loss : 3,864 " ---------- The ITO computed the property income as under : " Annual value : 3,943 Less : Municipal tax 1,016 --------- 2,927 Less : Deduction for self-occupation 1,463 --------- 1,463 Less : One-sixth for repairs 246 ---------- 1,220 Less : Interest paid 4,169 ---------- Loss : 2,949 ---------- Proportionate loss for 3 months 737" ----------On appeal, the AAC confirmed the ITO's order. It is, thus, that the matter is in appeal before the Tribunal. 2. In confirming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese, according to the learned counsel, clearly point out to the allowability of the full interest. Reference is also made to a circular issued by the Board--Circular No. 363 [F. No. 168/4/82-IT(A-I)] dated 24-6-1983--which analogically supports the assessee's case. 4. For the department, stress is laid on the orders of the authorities below. Section 23(1) clearly refers to the computation of proportionate income. Income, according to the learned counsel for the department, must have reference to a particular period. Automatically, the expenses relative to that period only can be allowed. The asset in question having come into existence on 1-1-1977, the income for the period subsequent to this date has to be worked out, the expenditure also for the corresponding period only can be deducted. Since in the present case, income for three months only is computed as a natural corollary, the interest relevant to the three months' period only can be allowed. The learned counsel for the department also has relied on this Board's Circular, dated 24-6-1983, which clarifies that interest accrues from day to day and the relevant interest occurring for the period only can be taken into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a taxable period by reference to 'annual value'. In other words, what is taxed under the Act is only the annual value of the property. The expression 'annual' is the adjective of the word 'year'. What is taxed under section 22 is, therefore, only the yearly income of the person derived from property. In other words, section 22 and the sections following, viz. sections 23, 24, 25, 26 and 27 of the Act, all are based on the concept of taxation of property income through 'the annual value of property'. Legally and etymologically, annual value cannot mean monthly value, weekly value, daily or momentary value. Where property income is brought to tax, therefore, if there is no 'annual value', there is no authority for taxing the property income in the Act at all. If the Legislature wanted a taxing of property income for a shorter period, there was no purpose in utilising the expression 'annual value of property'. As pointed out earlier the concept of 'annual' period for computation of income is completely absent with reference to all other sources and heads or income. 7. The learned counsel for the department strongly stressed the point that all incomes under all heads should be tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sser period, notional or otherwise, the income from that property cannot be included in the total income. 9. The above becomes of relevance firstly, where, as in the present case, the property is in the possession of the assessee only for a part of the year having been built during the course of the previous year. This also is of importance where the assessee has disposed of the property during the course of the year. May be, therefore, if for one reason or the other the assessee is not the 'owner' of the property for the full year, income from property cannot be included while working out his total income. The learned counsel for the department urged that it would be shocking to note that an assessee received a substantial income from property for a good part of the year but merely because he does not own the property for the whole of the year, that income should escape. Perhaps this is a natural result of the above interpretation forced on us by the clear words of the Act. But there is no inequity in this, since, as we pointed out above, the very manner of taxing of property income is notional, full of controversy and a little artificial. This view is further strengthened by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the numerator larger than the denominator. In other words, what the Explanation wants is that if the property is let out for a period of two months, the proportion would be 12/2 for the computation of annual rent and not the usual fraction 2/12 which is usually thought of in the context of proportions. The Explanation, therefore, further confirms our view that what is intended is, therefore, annual rental for consideration. It may be mentioned that the Explanation would fit in a case where the property is in the ownership of the assessee throughout the year but is let out only for a part of the year. For instance, the municipal, etc., valuation which would come up for consideration under section 23(1)(a), say, may be Rs. 500 per month, but for the last two months of the year, the assessee could let out the property at Rs. 5,000 per month. In such a case, under the Explanation the annual value for the whole year should be taken at Rs. 60,000 (Rs. 5,000 x 12) and not at Rs. 6,000 (Rs. 500 x 12). Except for this limited modification of the computation, the Explanation does not serve any purpose. 11. On the facts of the case, though the assessee's previous year ended on 31-3-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction or acquisition and the subsequent four years. Where the property is constructed during the course of the year, this provision cannot be given effect to in view of our earlier clarification with regard to the annual income of the property. Before the introduction of this Explanation, the assessee could perhaps validly claim deduction of the interest payable right from the date of borrowing but paid during that previous year. This is because there is no provision for referring the interest to any particular year or a proportionate disallowance of the same in section 24 which deals with deductions from house property income. After the introduction of this Explanation, this position has been modified. The interest payable for all previous years is allowed to be spread over five years. As pointed out by the learned counsel for the assessee, the interest for the succeeding years would be allowable in the respective years. Certainly when the Legislature has taken care to allow even the interest paid prior to the previous year though on an instalment basis, there is no logic in not allowing the interest payable during the previous year when the property was constructed. The only wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which the accounts are made up is the period, the income of which is to be computed. Exceptions to the twelve months period are provided in clauses (c) to (e) of that section. Property income not arising from business is covered by clause either (a) or (b). It follows, there is no scope for taxing the income from property for a period less than a full year. However, the income from this source, charge of which is attracted by the fact of mere ownership thereof, is computed on a notional basis--annual value--irrespective of whether it produces income or not, but where the basis of actual rent received for computing the income will yield a higher figure, it would be computed on such actual rent basis [section 23(1)(b) and clauses (a) and (b) of the Explanation to the said sub-section], subject to certain reliefs provided on account of its lying vacant for any part of the year, vide sections 23(3) and 24(1)(ix). It must follow as a corollary that there can be no charge in respect of income from property for a period less than a year. Computation of loss of either the assessee or the ITO, adopting a proportionate basis for a period of three months, has, according to me, therefore, n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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