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2016 (9) TMI 961 - ITAT MUMBAI

2016 (9) TMI 961 - ITAT MUMBAI - TMI - Charge to income tax in respect of a house property - deemed income - annual value - Held that:- The basis of the charge to income tax in respect of a house property, not occupied by its’ owner for the purpose of business or profession carried on by him, is its’ annual value; its income potential, as reflected in its’ fair rental value (FRV), i.e., the rent at which it may reasonably be expected to be let from year to year. This is irrespective of whether t .....

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4,5.1). - The fact of letting assumes significance only where the property is actually let and the rent received/receivable exceeds the fair rental value, so that the enhanced sum substitutes the FRV as the AV. A further exception is drawn where on account of vacancy this rent falls even below the FRV, in which case it is this reduced amount which is to be adopted as the AV. The property being let, though unable to fetch the rent due to vacancy, the amount actually realized/realizable is t .....

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a a property which is let. That the letting is for rent is both plain and manifest, so that it contemplates actual letting only. How else could, one may ask, the reduction in rent received/receivable and, thus, in AV, be possible? The actual letting is thus the sine qua non where a reduction or remission in rent on account of vacancy occurs, and is thus to be taken in to account. The words “where the property is let” in sections 23(1)(b) and 23(1)(c), thus, represents a state of actual letting a .....

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ch residential houses, save one (sections 23(2), 23(3) and 23(4)). There is also no anomaly in the provision, which is sought to be pleaded with reference to the word “whole” occurring in s. 23(1)(c). - Before parting, we may also advert to the argument advanced during hearing of the occupation certificate being issued by Brihan Mumbai Mahanagar Palika only on May 21, 2009 and the final payment of ₹ 875 lacs to the seller being, as provided in the conveyance deed, made only there-upon .....

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o the extent of the amount unpaid, i.e., ₹ 875 lacs, about 10% of the property value. - I.T.A. No. 6717/Mum/2012 - Dated:- 12-9-2016 - Shri Sanjay Arora, AM And Shri Ram Lal Negi, JM Appellant by : Ms. Priyanka Jain Respondent by : Shri K. Mahondas ORDER Per Sanjay Arora, A. M. This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-20, Mumbai ( CIT(A) for short) dated 18.9.2012, dismissing the Assessee s appeal contesting its assessment u/s .....

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rtenant 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 incometax, shall be chargeable to income-tax under the head "Income from house property". Annual value how determined. 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 expec .....

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eferred 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 clause .....

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her place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. (3) The provisions of sub-section (2) shall not apply if- (a) the house or part of the house is actually let during the whole or any part of the previous year; or (b) any other benefit therefrom is derived by the owner. (4) Where the property referred to in sub-section (2) consists of more than one house- (a) the provisions of that sub- .....

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ration acquired two properties, i.e., at S. V. Road, Mumbai and Vile Parle, Mumbai. The S.V. Road property was acquired on December 18, 2008 from M/s. Prime Property Development Corporation Ltd. vide conveyance deed of even date, taking its possession on the same date (PB pgs. 31-49). The property, it is contended, was acquired with the intent of letting, so as to earn rental income. The assessee entered into negotiations with M/s. Super Religare Laboratories Ltd. (SRL), which was in the process .....

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per month vide Leave and License Agreement dated 06/8/2009 (PB pages 52-71). The Assessing Officer (AO) computed the annual value of the said property for the relevant year at ₹ 116.85 lacs, i.e., taking the proposed annual rent of ₹ 467.40 lacs for three months, being January to March, 2009. The respective cases 4. The assessee, while not disputing the quantum of the gross annual rental value, claims that in-as-much as the property, though let-able, was vacant during the entire peri .....

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, so that its AV would stand to be computed taking the let-able value for the entire year, while if it is let even for a single day during the year, the same would stand restricted to the actual rent received/receivable, i.e., for one day. Then, again, how could the property be let and be vacant for the whole year in-as-much as the two conditions cannot co-exist, even as pointed out by the Tribunal in Premsudha Exports (P.) Ltd. vs. Asst. CIT [2007] 295 ITR (AT) 341 (Mum), on which reliance is p .....

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elopers vs. Asst. CIT [2008] 23 SOT 19 (Del); Indu Chandra vs. Dy. CIT (in ITA No. 96/2011 (Luck.); Shakuntala Devi vs. Dy. DIT (in ITA No. 1524/Bang/2010 dated 20.12.2011); Aryabhata Properties Ltd. vs. Asst. CIT (in ITA No. 6928/Mum/2011 dated 31.7.2013); and Asst. CIT vs. Suryashankar Properties Ltd. (in ITA No. 5258/Mum/2013 dated 10.6.2015). The Revenue s case is that the notion of proposed to be let or held for letting , etc., cannot be imported into the provision, which seeks to bring to .....

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erence is made to CIT vs. Dalhousie Properties Ltd. [1984] 149 ITR 708 (SC); New Piece Goods Bazar Co. Ltd. vs. CIT [1950] 18 ITR 516 (SC); CIT vs. H. G. Gupta & Sons [1984] 149 ITR 253 (Del); and Sakarlal Balabhai vs. ITO [1975] 100 ITR 97 (Guj). The AV, irrespective of whether the property is actually let or not, is thus to be subject to tax, unless covered under section 23(1)(b), as again reiterated by the Hon ble Apex Court per its Constitution Bench decision in Sultan Brothers (P.) Ltd. .....

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td. (supra); Shankuntala Devi (supra); and Indu Chandra (supra) were also distinguished by the ld. CIT(A) on facts. Before us, reliance was also placed on the date of the decision in the case of Vivek Jain vs. Asst. CIT [2011] 337 ITR 74 (AP), wherein the Hon ble Court, referring to a number of decisions, including in the case of Liquidator of Mahamudabad Properties (P.) Ltd.(supra), rejected similar contentions as made in the instant case. Discussion 5.1 Prior to its substitution by Finance Act .....

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r making the following deductions, namely:- (i) ……… (ii) ………. (ix) where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such part is wholly unoccupied. Explanation- The d .....

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ion only in cases where the property is let, that is to say, it has no application in case of owner s dwelling house property [CIT v. Krishna Chandra Gajapathi Narayana Deo (AIR 1926 Mad 287)]. The provision of section 24(ix), as it stood up to assessment year 1976-77, i.e., without an Explanation at its end, a deduction by way of vacancy allowance could be granted only where the vacancy occurred after the house had been let out by the assessee. As a result of the insertion of the Explanation at .....

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hereof is let for at least a part of the relevant previous year, and the same remains vacant for the other part of the year. In other words, where the property or part thereof was not let at all during the entire previous year, no deduction for vacancy allowance is permissible. As held in Gujarat Ginning & Manufacturing Co. Ltd. vs. CIT [1994] 205 ITR 314, 322-23 (Guj), the vacancy allowance cannot be claimed if the property was not let out at all during the previous year concerned. Such vie .....

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, which is permissible as a deduction under section 24(1)(ix) [Punnalal Silk Mills (P.) Ltd. vs. CIT. [1992] 194 ITR 270, 273 (Bom)]. Reference in this regard is also made to the decisions in Mangaldas H. Verma vs. CIT [1980] 124 ITR 185 (Bom); CIT vs. Pradeepkumar M. Shah [1981] 130 ITR 118 (Ker-FB); Sachin Barick General Enterprises (P) Ltd. vs. ITO [1984] 147 ITR 778 (Cal); CIT vs. Joy P. Jacob [1985] 151 ITR 19 (Ker); CIT vs. K. A. Vamana Pai [1986] 158 ITR 211 (Ker). The observations by the .....

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being let, at least for a part of the relevant year, to be entitled to any remission or deduction on account of vacancy. 5.2 The question that arises is whether the scope of the said words can be said to extend to a property not actually let, but intended to be let. This is contended on the ground that the new section contains the word whole along with or any part of the previous year in s. 23(1)(c). In-as-much as vacancy for the whole year cannot coexist with the property being let, the contrad .....

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ara 14). The provisions of a taxing statute are to be strictly construed and, further, intended to be understood in their natural, ordinary and popular sense, according them their grammatical meaning (para 12). No hardship, injustice, anomaly or absurdity arises if it is borne in mind that the period of vacancy cannot exceed the period for which the property was let out (para 15). Would a property, one may ask, be given - at least ordinarily, on rent, which involves delivery of possession as wel .....

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ecause of vacancy, the actual rent received or receivable by the owner is less than the sum referred to in clause (a), that the clause was inserted. In cases where the property has not been let out at all during the previous year, there is no question of any vacancy allowance being provided thereto under section 23(1)(c) (para 16). Thus, only such properties which are occupied by the owner for residence, which are vacant on account of circumstances mentioned in clause (b) of section 23(2), fall .....

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lowed, the same would have the effect of reducing the AV (for that year) to that extent rather than being allowed as deduction there-from, and which is so even in respect of rent which cannot be realised, being erstwhile allowed as a deduction u/s. 24(1)(x). The reason (for this continuing position) is not far to seek. The whole premise of vacancy remission is to provide relief to the extent the rent of a let out property could not actually be made good on account of the practical incident of it .....

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he erstwhile s. 24(1)(ix) to now s.23(1)(c), there is no material change in the provision. All the decisions rendered in the context of s. 24(1)(ix) would therefore have equal application in interpreting s. 23(1)(c) as well. We find no finding in Premsudha Exports P. Ltd. (supra), the principal decision by the tribunal advocating the intention to let as being sufficient to qualify the house property as let and, thus, eligible for vacancy remission, to that effect, i.e., of the law effecting a su .....

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l letting, or only applicable to a property that is imbued with the character or condition of being let. That is, vacancy cannot exist or be considered independent of or de hors the letting . Further on, section 23(1)(c) provides for a further qualification qua a property that is actually let, as contemplated u/s. 23(1)(b), yielding benefit to the owner, though, whose AV, for the purpose of section 23, may have to be computed by factoring in the fact of vacancy during the year, i.e., where it ha .....

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e potential, as reflected in its fair rental value (FRV), i.e., the rent at which it may reasonably be expected to be let from year to year. This is irrespective of whether the property is actually let or not. The exception to taxing the FRV of a house property under the Act is provided in respect of one house property which the owner could not, by reason of his employment or business/profession, occupy, provided it is not actually let and no other benefit has been availed of by him during the r .....

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s reduced amount which is to be adopted as the AV. The property being let, though unable to fetch the rent due to vacancy, the amount actually realized/realizable is taken as the AV, whether lower or higher than the FRV. That is, where the property is let, the actual rent is made the basis for AV in preference to the notional (fair) rent provided the decline in rent (w.r.t. fair rent) is on account of vacancy or unrealizability. This is the effect of a combined/conjoint reading of section 23(1), .....

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cy occurs, and is thus to be taken in to account. The words where the property is let in sections 23(1)(b) and 23(1)(c), thus, represents a state of actual letting and cannot be extended to a state of intended letting . Letting , it may be appreciated, is a culmination of intended letting , so that the Act stipulates a maturity/completion of the intention to let. The words actually let in section 23(3) have no bearing at all in the matter. The same have perhaps been used to emphasize the deemed .....

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f any, while the words where the property is let refer to the qualifying condition for vacancy remission. Vacancy as a concept has, as afore12 noted, a symbiotic relationship with the notion of letting in-as-much as it draws upon and is inextricably linked thereto, devoid of any meaning in the absence thereof, implying only an actual letting. Both, the scheme of the Act as well as the language of the provision are abundantly plain and clear. There is no scope for the application of the principle .....

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lear finding given in Vivek Jain (supra), for which the Hon ble Court also refers to the Notes on Clauses (reported at [2001] 248 ITR (St.) 35, 118) as well as the Departments Circular No. 14 of 2001 (supra), also reproducing there-from (at pages 80-81 of the Reports). The said decision, being by a higher appellate forum, has even otherwise a higher precedential value, i.e., than that by the Tribunal, even as no contrary decision by any higher court has been brought to our notice. Further, all t .....

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nuary, 2011 upon relying on a number of authorities, is not cited or relied upon by the Revenue before the Tribunal in these cases, much less those by the tribunal taking a different view, including in the case of Vivek Jain itself. This would have had the effect of the tribunal taking a different view in the matter, as in the case of Indra S. Jain vs. ITO [2012] 52 SOT 270 (Mum). Further, whether the tribunal is competent to read down a provision of law is another aspect of the matter that woul .....

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