TMI Blog2008 (9) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowances made has been confirmed without appreciating correctly the provisions of law, that under section 24( b ) there is no such restriction, that no interest will be allowed because there remained no rental income, and the payment of interest under section 24( b ) will be allowed only in respect of property referred to in sub-section 2 of section 23. ITA No. 233/Agr./2007 (by the revenue) 1. That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of ₹ 6,86,435 made on account of capital gains on sale of plots ignoring the facts mentioned in the assessment order. 2. That the decision of learned Commissioner of Income-tax (Appeals)-II, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored. ITA No. 171/Agr./2007 (by the assessee) 3. The facts in relation to the assessee s grounds, being inter-related, concern as they do with the maintainability of the assessee s claim of interest expenditure incurred (Rs. 1,06,175), under section 36(1)( iii ) of the Income-tax Act, 1961 ( the Act hereinafter) or, alternatively, under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f-occupied property, where it had already specified one such property, i.e. , under section 23(2) read with section 23(4)( a ), being the residential house at Shalimar Enclave, Agra. 4.2 The relevant provisions of the Act are as under :- 22. Income from house property. -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 . 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 or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause ( a ), the amount so received or receivable; or ( c )where the property or any part of the property is let and was vacant during the whole or any part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees : Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1-4-1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees. 4.3 Both the authorities below have taken a view that though section 24( b ) does not draw any distinction between a property that is self-occupied and one that is not, the assessee having not disclosed any income (annual value) thereagainst, and which can only be in respect of one house property, which stands already specified by him (the residential property at Shalimar Enclave, Agra), the assessee s claim for deduction under section 24( b ) is not maintainable. The ld. A.R., before us, was at pains to emphasize that though, admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to section 23(1)( b ) or section 23(1)( c ), as the case may be. 4.5 It may well be argued, however, that section 23(1)( b ) represents an independent or distinct provision, i.e., from section 23(1)( c ); each of the three clauses - ( a ), ( b ) and ( c ) of sub-section (1) of section 23 - representing independent and distinct situations, as also borne out by the fact of the said clauses, being marked or separated by the word or so that the law contemplates either of the three scenarios as obtaining for a given property during the year or part thereof. As such section 23(1)( c ) is not an adjunct to, or a sub-set of, section 23(1)( b ) and, therefore, the qualifying condition therefor, i.e. , of the rent received or receivable being in excess of the fair rental value (FRV), would not be applicable to, or hold for, a property which, though let, remains vacant (for the whole or part of the year) and, consequently, falls under, or is covered by, section 23(1)( c ). Secondly, even so, the property falling under section 23(4)( b ), being only deemed to have been let out, and not actually so, how could it be presumed to have been let at less than its FRV, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 23(4)( b ) [implying antecedent satisfaction of section 23(2) and 23(3)], or that the condition for the application of section 23(1)( b ) would not apply to one covered under section 23(1)( c ), would be presumptuous and inconsistent with the express provisions of the Act. It needs to be appreciated that in cases like the present one the property remains vacant throughout, i.e. , since the assumption of its ownership by the assessee, so that how could it be said to have been let at any time during the year, or, for that matter, at any point of time of its ownership. And which brings us to the next objection, which argues of the state of letting as being only one by virtue of the legal fiction of section 23(4)( b ), and which should, therefore, be taken to its logical end by presuming a rental value. True, but then the deemed rental value, that would logically follow the condition of deemed letting would only be equal to the FRV, i.e., as postulated by section 23(1)( a ) - neither less nor more, so that in case of a deemed letting under section 23(4)( b ), as in the present case the annual value of the relevant house property would necessarily have to be computed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is business or profession) might reasonably be expected to be let, or the actual rent received/receivable in its respect, whichever is higher, is to be assessed as income from house property, irrespective of whether the same is actually let or not, save any one property, which is used by the assessee for his own residence, or, being not actually so used (by virtue of his residence, on account of employment or business being at same other place), no benefit is derived by him therefrom, and which (one property) the assessee may specify at his option. Not so doing, and placing an interpretation as advanced by the assessee/ld. AR would, besides being inconsistent with the express provisions of section 23, be defective of the provisions of sub-sections (2), (3) and (4) of section 23, which together with section 23(1) we find as internally consistent, inasmuch as the assessee could avail of nil annual value for any number of self-occupied house properties with reference to the fact of their being vacant, even as there is in fact no actual letting or theoretical possibility thereof. Besides, it is trite, even as explained recently in the case of Ishikawajma-Harima Heavy Industries Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state that the ld. A.R. in response to a query by the Bench during the course of hearing on these lines, quoted a CBDT Circular [No. 14 (XL 35) of 1955, dated 11-4-1955] (copy on record) in support of the validity of the admission of the assessee s claim under reference by the revenue. In this regard, it may be stated that, firstly, the said reliance is unnecessary; the revenue having already admitted the assessee s claim and adjudicated thereon on merits, and we duly explaining the reason for our reference to the said admission while discussing the matter in the order as a part of the adjudication of the issue at large. Secondly, in our view, the said reliance is even otherwise misplaced. The said Circular only speaks of a suo motu allowance by the revenue of undisputed reliefs or refunds to which the assessee is otherwise clearly entitled to, though omits to claim the same, presumably out of ignorance, as the Assessing Officer is only expected to extend all reasonable help to the assessee, the proceedings under the Act being not adversarial proceedings, in determining his correct tax liability under the Act, and does not extend to claims which the revenue seriously disputes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is higher, is deemed to be the consideration received or accruing on the transfer of the relevant capital asset, and income chargeable to tax as capital gains computed adopting the same value. The assessee s objection thereto, on the basis of having invested business funds in the purchase of the said property, and of having claimed the interest expenditure thereon, i.e., to the extent borrowed, as a business expenditure, in the computation of his business income, even as done by him for the preceding years, whereat the property stood purchased, stood rejected by the Assessing Officer on the ground that the assessee had diverted his borrowed business funds to finance the said capital assets, and the assessee s business continued to be that of purchase and sale of medicines only. 5.2 In appeal, the ld. CIT(A) was of the view that the deciding factor in such a case being the nature of the transaction, it was a mixed question of law and fact, to be determined after taking into consideration all the facts and circumstances of the case. In the present case, it cannot be denied that the two properties under question were of commercial nature; stood acquired, even if in part, throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature, would not, in our view, be of much relevance in deciding the issue at hand, as the one could acquire and hold both commercial or non-commercial properties as capital assets; the purchase in either case being motivated and influenced by the consideration of the anticipated profits, i.e., the perceived appreciation over the future. So, however, the fact that the property stood sold within a short time, even as observed by the ld. CIT(A), is also indicative of the assessee s intention to realize the profits and appreciation, even though not high, so that the same were regarded by him as essentially his stock-in-trade. In this view of the matter, we are inclined to be in agreement with the order of the ld. CIT(A). so that the same is confirmed; we finding no infirmity therein so as to merit our interference. Both the parties have relied on a host of case law in support of their respective cases, to which there has been no reference in this order. This is as, firstly, the same are the part of the record and, secondly, there being no doubt or dispute as to the statement of law in the matter; the same being decided solely on the basis of the appreciation of facts, leading to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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