TMI Blog1993 (3) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes in respect of properties which were not let ?" For the assessment years 1968-69, 1969-70, 1971-72 and 1972-73 : "1. Whether, on the facts and in the circumstances of the case, the income was rightly taxable under the head 'Business income' and not 'Income from house property' ?" For the assessment year 1971-72: " 1. Whether the Tribunal was tight in rejecting the claim of deduction of Rs. 26,512 which was the excess income taxed in the earlier years because of the decision in this year fixing the standard rent at Rs. 335 against the contractual rent of Rs. 601?" For the assessment year 1970-71: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in, holding that the additional ground to the effect that the income was taxable under the head 'Business' and not 'Income from property' could not be entertained ?" As the questions which have been referred to us arise out of the judgments and orders passed by the Tribunal in five separate appeals pertaining to five separate assessment years, the Tribunal ought to have made five separate references. As that has not been done by the Tribunal, we direct the office to register five s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property which was not actually let out should either be excluded from computation or the assessee should be granted vacancy allowance. This vacancy allowance should be granted not only in respect of the property which had remained vacant nor let out but also in respect of the property wherein machinery was lying. A contention was also raised that the assessee was entitled to a deduction of municipal taxes in respect of the property not let out and the annual letting value of such property should have been determined accordingly. In respect of the assessment proceedings for the assessment year 1971-72, a contention was raised that the assessee was entitled to a deduction or set off of Rs. 26,512, which was excess income in the earlier years on the basis of rent received then but which rent came to be fixed at lower rate during that assessment year. Some other contentions were also raised but we are not concerned with them in this reference. The Income-tax Officer considered the income of the assessee as income from property and not as income from business. He disallowed the claim for deduction of municipal taxes and determined the annual letting value accordingly, follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its memorandum of association the activity of purchasing or acquiring lands and buildings or constructing them and letting them, it cannot be said that thereby it had embarked upon that activity or business. That has to be inferred from the subsequent conduct of the assessee. The next decision relied upon by learned counsel for the assessee is the decision in the case of CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC). In that case, it was found as a matter of fact that the intention of the company was not to part with the assets but to lease them out for a temporary period as a part of exploitation. Considering that fact and other circumstances, the Supreme Court affirmed the decision of the High Court [1977] 106 ITR 829 (All), which had taken the view that, from the said fact and other circumstances, it could not be said that no business was carried on or that the income derived by the company from letting out the machinery was only rental income. In that case, the High Court had held that the income derived by the company by way of lease rent from the letting out of its assets was assessable to tax under the head "Profits and gains of business" and that decision was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, it becomes clear and, in our opinion, the Tribunal was right in coming to the conclusion that what the assessee intended was to earn income by letting out properties by treating them as properties. That income which the assessee received as a result of letting out the properties was as an owner of the properties and not in any other capacity. The Tribunal was right in treating the income received by the assessee as result of letting of the properties as income from property and not accepting it as business income. The circumstance that the assessee was allowing tenants to use its telephone and had engaged a watchman to look after the properties cannot be of any avail to the assessee as, admittedly, the expenses incurred by the assessee for that purpose did not constitute one per cent. of the total income received by it by way of rent. It was submitted by learned counsel for the assessee that, with respect to the properties which were neither struck with sterility nor let out and with respect to the properties where machines were lying, the assessee should have been granted vacancy allowance. In support of his contention, he relied upon clause (ix) of sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then stood was as under : "(2) Where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall first be determined as in sub-section (1) and further be reduced by one-half of the amount so determined or one thousand eight hundred rupees, whichever is less." As we are not concerned with the proviso and the Explanation, we have not reproduced the same, What was contended was that the annual value of the property is to be determined on the basis of a fiction that the property is let to a tenant. Once such fiction is raised, the proviso automatically becomes applicable and, therefore, even in respect of the property which is not let out and which is in the occupation of the owner, deduction of municipal taxes has to be granted while determining the annual value for the purpose of section 23. In support of his contention, learned counsel relied upon the decision of this court in CIT v. Arvind Narottam Lalbhai Dalpatbhai Vada [1976] 105 ITR 378, wherein this court has held as under (headnote) : "While calculating the annual letting value of the property in the occupation of the owner for the purpose of his residence, municipal tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1), namely, that the property should be in the occupation of a tenant, would not apply to property in the occupation of the owner for the purpose of his own residence.... The words 'further be reduced' indicate that some deduction from the annual letting value has already been carried out before further reduction contemplated by sub-section (2) of section 23 can be considered and that further reduction can only be of the municipal taxes as contemplated by the proviso to sub-section (1) read with the Explanation to that proviso. There is no other meaning that can possibly be attached to the words 'further be reduced'." In Arvind Narottam's case [1976] 105 ITR 378, this court was concerned with a claim made under section 23(2), i.e., in respect of the property in occupation of the owner for his residence. In that context and in view of the language used in sub-section (2), this court held as stated above. Moreover, with due respect, it has to be stated that the learned judges constituting that Bench stressed what was to be deemed further than what was intended by section 23(1). What it provided was that the annual letting value had to be determined on a notional or hypothetical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the figure of the bona fide annual value of the property. Now, that contention is clearly based on a fallacy because income on property is not based on what the landlord actually receives. It is based on the bona fide annual value of the property. If a landlord claims any deductions, he must come under one or other of the heads which are contained in the sub sections to section 9 of the Income-tax Act and which are considered to be allowances which can be made to a landlord in taxing his income to income-tax. In fixing the rent a landlord takes into consideration all his outgoings and fixes a reasonable rent, and one of the outgoings in this case happens to be the municipal property tax and the urban immovable property tax. It would be entirely erroneous to suggest that a landlord is allowed to deduct from the rent which he receives all the outgoings before the bona fide annual value of the property is arrived at. The bona fide annual value of the property is the rent which the landlord receives. The outgoings are matters for allowances, and if a particular outgoing is permissible allowance under section 9, then the income-tax authorities could grant that allowance to the landlor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976] 104 ITR 551, wherein it is observed as under (headnote): "It is no doubt true that such deduction is not contemplated by the actual wording of section 16 of the Act. But what has been pointed out goes to the very root of the notion of 'income' and before anything can be considered 'income', the principle which follows from the basic approach of 'income accrued' being considered on the same footing as income received, must be accepted." Now, these observations are obiter dicta and this court, realising the difficulty in granting such benefit in the absence of provisions, expressed the hope that the authority concerned would consider the claim of the assessee. In the absence of any provision to that effect, it cannot be held that the assessee was entitled to the claim of set off and that the Tribunal went wrong in not granting the same. The last contention raised by the assessee was in respect of the assessment year 1970-71 only. We would have been required to go into that question if we had come to the conclusion that the income which the assessee had earned was business income. As we have come to the conclusion that the income was rightly held to be income from property ..... X X X X Extracts X X X X X X X X Extracts X X X X
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