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TMI Blog2013 (1) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... dard rate of MCD in determining the annual letting value, whereas the assessee has previously herself let out the two properties at a much higher rent; 5. relying upon the decision in the case of Kamal Mishra v. ITO [2008] 19 SOT 251 (Delhi), when the facts of the case are distinguished from the assessee's case." 2. Vide assessment order dated 19.12.2006, the A.O. made an addition of Rs. 13,83,270/- to the income of the assessee, on account of property income. It was observed that the assessee was owner in possession of a number of properties, whereas she had shown income from house property at Nil. She was asked to explain as to why the rent received in F.Y.s 2001-02 and 2002-03 in respect of properties bearing No.1-A and No. 2, Ring Road and No.A-6 A, Maharani Bagh, be not deemed to attract annual letting value u/s 23(4)(b) of the IT Act, for the year under consideration. In response, the assessee submitted that the property at 2, Ring Road was self occupied and so, it did not have any annual letting value, whereas the other two properties had remained vacant throughout the year, due to which, the rent received was nil, in accordance with the provisions of Section 23(1)(c) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly taken the factual as well as legal position into consideration while passing the order under appeal; that the A.O. had not carried out any exercise to establish the rental value sought to be assigned to the properties of the assessee and had merely gone by the rentals received by the assessee in the earlier year, and had wrongly completed the assessment on that basis, even though the properties were never let out during the year; that apropos the Maharani Bagh property, due to expiry of lease with the previous tenant, National Highway Authority of India, the property was vacated on 15.10.2001 and during the year, no rent had been received by the assessee; that the property had been lying vacant and the assessee had also moved an application for fixing of ALV with the MCD w.e.f. 1.4.99; that on inspection of the property, the MCD fixed its rental value at Rs. 34,600/- w.e.f. 16.10.01; that the A.O., however, erroneously fixed the ALV of the property at Rs. 12,76,104, wrongly applying the provisions of section 23(4)(b) of the Act, instead of the provisions of section 23(1)(c) of the Act, which were the correct provisions applicable, though the A.O. stood duly furnished with all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. The assessee has also filed a synopsis before us, which we consider it relevant to reproduce (relevant portions) hereunder:- "1. Admittedly, the facts of the case are that the appellant Dr. Prabha Sanghi owns three house properties as under:- 1. 2, Ring Road, Kilokri, New Delhi. 2. I-A, Ring Road, Kilokri, New Delhi. 3. A-6A Maharani Bagh, New Delhi. In all the above three properties, the assessee has partial interest. 2. Admittedly, out of the above three properties, the property located at 2, Ring Road, Kilokri, New Delhi, is self occupied and has always been self-occupied and is therefore, not liable to tax u/s 23(2) of the Income Tax Act. There is no dispute with regard to this property. 3. Admittedly, the remaining two properties viz., I-A, Ring Road, Kilokri, New Delhi, and A-6A, Maharani Bagh, New Delhi, had been on rent with public sector undertakings in the earlier years , but have been lying vacant during the previous year relevant to assessment year 2004-05. Admittedly, no rent was received or receivable, nor any other income was derived from the two properties throughout the previous year 2003-04 relevant to assessment year 2004-05. 4. The municipal valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable. Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation - For the purposes of clause (b) or (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realize. (2) Where the property consists of a house or part of a house which- (a) is in the occupation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenanted, as the ALV in the current year, when the property is admittedly vacant. Therefore, the AO, in any case, was not empowered to take Rs. 12,76,104/- and Rs. 6,99,996/- as the ratable value of the two vacant properties in the year under consideration, even if he sought to apply section 23(4)(b), because section 23(4)(b) again refers to section 23 (1)(a) for determination of the ALV. 12. The second step u/s 23(1)(b) is to determine if actual rent received or receivable is higher than the one determined above u/s 23(1)(a) . In this case, admittedly, No Rent, No Agreement of tenancy, property vacant, therefore, computation u/s 23(1)(b) fails and it would be NIL in the present case. 13. The third step is to determine whether any part of the property was let out and was vacant either during the whole or any part of the previous year and owing to such vacancy, the annual rent received or receivable by the owner in respect thereof was less than the sum referred to in sub-clause (a) than the amount so received or receivable. 14. The third step as mentioned above as per section 23(1)(c) in this case would be for I-A, Ring Road, Kilokri, New Delhi, in respect of which the amount wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its occupation, then according to clause (a), sub-section (4), the concession provided in sub-section (2) would be restricted to one house property only and the other two would have to suffer the consequences of section 23 (1) and have ALV determined on these according to section 23(1) of the Act. In the case of the appellant (sic assessee), it, again, is irrelevant for the reason that it is not the case of the appellant (sic assessee) that these two properties were in her self-occupation, but were lying vacant throughout the previous years relevant to the assessment year under consideration. For the sake of argument, even if sub-section (4) is applied, it again leads back to section 23(1) because it only restricts the exemption granted under sub-section (2) to only one house property; the other two, according to sub-section (4) would have to suffer the consequences of determination of ALV u/s 23(1) of the Act. This is made clear in the last part of section 23(4)(b) wherein it says that the annual value of the house, or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-clause (1) as if such house o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed only in respect of two houses of the assessee's choice. The annual value of the remaining houses will be determined as if they were let out. The resultant annual of the house or two houses owned and occupied by the tax-payer for the purposes of his own residence will, as at present, be further limited, where appropriate, to ten per cent of other taxable income of the tax-payer and the excess, if any, will be disregarded." 20. The Taxation Amendment Act of 1975, with effect from 1.4.1976, actually added section 23(1)(b) to the Income Tax Act whereby annual rent received or receivable was in excess of reasonably expected rent as per section 23(1)(a), then the higher of the two would be taxable and this Amendment Act also reduced the exemption to self-occupied properties instead of two to one house only. Therefore, as per the Legislative history right from the 1922 Act, all houses under self-occupation had concessional treatment under the Act. Then this became restricted to two houses by amendment of Taxation Amendment Act of 1970 with effect from 1.4.1971 Para 65 of CBDT Circular No. 56 dated 19.3.1971 explaining the above has already been reproduced The Taxation Amendment Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained by CBDT, u/s 23(1)(c) the rent received or receivable admittedly is NIL and thus NIL would become the annual value u/s 23(1) of the Act for both the properties." 8. We have heard the parties and have perused the material on record. The issue is as to whether the ld. CIT(A) has rightly applied the provisions of section 23(1)(c) rather than those of section 23(4)(b) of the Act. 9. At the outset, it would be appropriate to reproduce hereunder, both these provisions:- Section 23(1)(c) - where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Section 23(4)(b) - the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let. 10. A perusal of section 23(1)(c) clearly shows the unambiguous requirements of the said section. This section requires that where the property was vacant dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne house. As per Section 23(4)(a), the concession will be available to the assessee only with regard to one of the houses constituting the property and the ALV of the remaining houses shall have to be determined, in case, all the houses are in the occupation of the assessee. In the present facts, this is not the case and the two houses, as discussed, were let earlier, but were lying vacant during the year. As such, Section 23(4)(a) is not applicable. 16. Section 23(4)(b) is applicable, as considered, and it leads back to Section 23(1). So the situation is back to square one. 17. Undoubtedly, it was to cure the inequity of taxing vacant properties under a notional charge, that Section 23(1)(c) was brought on the statute book by virtue of the Finance Act of 2001 w.e.f. 01.04.2002, as rightly contended on behalf of the assessee, in order to provide simplified determination of annual value of property on allowing deductions in computing the ALV itself on account of vacancy and unrealized rent. 18. Thus, looked at from any angle, it is the provisions of Section 23(1)(c) of the Act which are applicable hereto and none other. Accordingly, we hold that the Ld. CIT(A) was correct in appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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