No Vacancy allowance us 23(1)(c) if property actually not let out at all even for a single day during the previous year. There is no anomaly in the Law-ITAT
ABCAUS Case Law Citation:
1017 (2016) (09) ITAT
Assessment Year: 2009-10
Brief Facts of the Case:
The appellant assessee was a private limited company which acquired the property in question on 18th December, 2008. Subsequently it entered into negotiations with with another company which was in the process of setting up a state of the art laboratory in the city at the relevant time. The basic terms and conditions agreed to between the parties for taking the property on rent, proposed to be from 01.4.2009 onwards, were recorded in a Letter of Intent (LoI) dated 09/02/2009. The property was in fact let with effect from 1/4/2009 at the agreed rent of Rs.38.95 lacs per month vide Leave and License Agreement dated 06/8/2009.
However for the FY 2008-09 (FY 2009-10), the Assessing Officer (AO) computed the annual value of the said property at Rs.116.85 lacs, i.e., taking the proposed annual rent of Rs.467.40 lacs for three months subsequent to the purchase in December 2008, being January 2009 to March, 2009. The assessment was accordingly made u/s 143(3) of the Income Tax Act, 1961.
On appeal, Commissioner of Income Tax (Appeals) dismissed the Assessee’s appeal upholding the assessment.
The assessee agitated the matter before the ITAT .The only issue was with respect to the correct amount at which the annual value was liable to be assessed in law, i.e., under section 22 read with sec.23.
Contentions of the Assessee:
The assessee claimed that the property, though let-able, was ‘vacant’ during the entire period of the year since its acquisition in December, 2008 to march 2009, its annual value (AV) ought to be restricted to the actual rent received or receivable, i.e., Nil.
The main contention of the assessee was that in its case, the condition of the property being first let out as occurring in section 23(1)(c) was duly met by the intent to let out the same. Referring to the section 23(3)(a), the assessee contended that when the Legislature had required the house property to be actually let, it has stated it unambiguously.
It was submitted that a contrary view would lead to absurd results, as in a case where the property is not let for a single day of the year, and is vacant for the whole year, 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. The words “where the property is let” as occurring in section 23(1)(c) are therefore should be construed to include where it, though self occupied, is with the intent of letting it, which is apparent in the instant case.
Contentions of the Revenue:
The Revenue’s case was that the notion of ‘proposed to be let’ or ‘held for letting’, etc., cannot be imported into the provision, which seeks to bring to tax a notional sum, being the income potential i.e. annual value (AV), of a house property, which is the fair rental value which the house property may reasonably be let from year to year.
It may thus have nothing to do with the actual letting of the house property, or the actual receipt of rent, and is in the nature of an artificial or statutory income.
Observations made by the Tribunal:
Regarding the contention that a vacancy for the whole year cannot coexist with the property being let the Tribunal observed that Andhra Pradesh High Court in the case of Vivek Jain had clarified that clause (1) of section 23 also encompasses a property which was let for more than a year, as (say) for 2 or 3 years. Thus there is a possibility for a property being vacant for the whole of the relevant previous year. The Court had clarified that Clause (c) of section 23(1), was not inserted to take out from its ambit properties held by the owner for self-occupation in-as-much as section 23(2)(a) provides for such an eventuality. It was only to mitigate the hardship faced by an assessee, and as clause (b) does not deal with the contingency where the property is let and, because 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). it was held that where a property that was not let out at all during the previous year, there was no question of any remission on account of vacancy u/s. 23(1)(c).
The ITAT opined that the position of law regarding vacancy remission post amendment of 2001 remains substantially the same. Apart from the placement of the provision, i.e., from the erstwhile section 24(1)(ix) to new section 23(1)(c), there is no material change in the provision and all the decisions rendered in the context of s. 24(1)(ix) would therefore have equal application in interpreting section 23(1)(c) as well.
The Tribunal summed up that both section 23(1)(b) and 23(1)(c) only represent different scenarios qua a property which is let. 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 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 letting where some benefit is derived by the owner in respect of his house property, whether self-occupied or not, and also of such deeming in respect of all such residential houses, save one (sections 23(2), 23(3) and 23(4)).
It also concluded that there is also no anomaly in the relevant taxing provision sought to be pleaded with reference to the word “whole” occurring in section 23(1)(c). The same stands answered by AP High Court. Both, the scheme of the Act as well as the language of the provision are abundantly plain and clear.