For computing annual value of property, S 23(1)(c) is to be applied in case where property is let out for 36 months, and thereafter remains vacant and not put under self occupation by owner: ITAT
By TIOL News Service
MUMBAI, OCT 18, 2018: THE ISSUE IS - Whether for computing annual value of the property, sec 23(1)(c) can be applied in case where property is let out for a period of 36 months, and thereafter remains vacant during whole of the relevant year and is not put under self occupation by owner. YES IS THE VERDICT.
Facts of the case
The assessee company, engaged in construction business had filed its return of income for relevant AY. During assessment, AO noted that the "balance sheet" of the assessee revealed investments of Rs. 3,54,81,980/- in immovable properties on 01.04.2010. On being called upon to explain that as to why the deemed rental income of the properties may not be brought to tax under the head "Income from house property", the assessee objected to the same. It was the claim of the assessee that the Unit No. 401 & 425 of project "Balaji Bhawan" had remained vacant for the entire year as the licensee viz. M/s Sterling Construction System Pvt. Ltd. had vacated the premises and no rent, whatsoever, had thereafter been received.
The AO was not satisfied with reply of assessee. The AO was of the view that as per Sec. 23(1)(a) of the Act, the sum for which the property might reasonably be expected to be let from year to year was to be taken as the deemed "annual value" of the property u/s 22 of the Act. Further, the AO held a conviction that the provisions of Sec. 23(1)(c) could be pressed into service only when the property was actually let and had remained vacant for some period during the year. Thus, the AO was of the view that as the property under consideration were not at all let out during whole of the year, hence the provisions of Sec. 23(1)(c) would not be applicable to its case. The AO computed the "annual value" of the property as per Sec. 23(1)(a) at Rs. 81,99,360/-. On appeal, CIT(A) sustained the order of the AO.
Tribunal held that,
++ it can safely be concluded that the requirement that the "house is actually let" during the year is not to be taken as a prerequisite for bringing the case of an assessee within the sweep of Sec. 23(1)(c) of the "Act", as long as the property is let in the earlier period and is found vacant for the whole year under consideration, subject to the condition that such vacancy of the property is not for self occupation of the same by the assessee who continues to hold the same for the purpose of letting out. The usage of the term "Property is let" in Sec. 23(1)(c) had purposively been used to exclude those properties from the ambit of the clause which are held by the owner for self occupation purposes, because even though the "annual value" of oneself occupied property so chosen by the assessee is taken at Nil, however the "annual value" of all the remaining self occupied properties are to be determined in terms of Sec. 23(1)(a) of the "Act". Thus, though the term "Property is let" used in Sec. 23(1)(c) is solely with the intent to avoid misuse of determination of the "annual value" of self occupied properties by the assesses by taking recourse to Sec. 23(1)(c), however, the same cannot be stretched beyond that and the "annual value" of a property which is let, but thereafter remains vacant for the whole year under consideration, though subject to the condition that the same is not put under self occupation of the assessee and is held for the purpose of letting out of the same, would continue to be determined u/s 23(1)(c) of the "Act". Thus, the assessee in the present case had rightly determined the "annual value" of the property at Nil by taking recourse to Sec. 23(1)(c) of the "Act";
++ the CIT(A) had misconceived the judgment of High Court of Andhra Pradesh in the case of Vivek Jain Vs. ACIT. The court had observed that though the benefit of computing the "ALV" u/s 23(1)(c) could not be extended to a case where the property was not let out at all, however the same would duly encompass and take within its sweep cases where the property had remained let out for two or more years, but had remained vacant for the whole of the previous year. Thus, when in the case of the present assessee the property under consideration had remained let out for a period of 36 months, and thereafter though could not be let out and had remained vacant during whole of the year under consideration, but had never remained under the self occupation of the assessee, thus, no infirmity emerges from the computation of the "annual value" of the property under Sec. 23(1)(c) of the "Act" by the assessee. The determination of the "annual value" of the property under consideration, Unit No. 401 & 425 of project Balaji Bhavan at Rs. 81,99,360/- by the AO by taking recourse to Sec. 23(1)(a), which thereafter was sustained by the CIT(A), is vacated. The appeal of the assessee is allowed.
(See 2018-TIOL-1860-ITAT-MUM)
