Per Sunil Kumar Yadav, Judicial Member. - These appeals are preferred by the assessee against the Order of the CIT(A) on various grounds, but, all grounds relate to a common issue in these appeals as to what would be the annual letting value of a property when remained vacant for the whole year. Since common issue is involved in these appeals, we heard these appeals simultaneously and are being disposed off by this consolidated order. For the reference, we take up the facts of the case in the case of Khan International Exports P. Ltd. v. Commissioner Of Income-Tax [2007] 17 SOT 293 (Mum.).
2. The brief facts available on record are that the assessee- company engaged in the business of export of diamonds and filed its return of income for assessment year 2003-04 on 14-10-2003 declaring total loss at Rs. 9,024. The assessee had purchased the property i.e., flat from Vissanji Estate Private Limited, Nariman Point, Mumbai and during the year relevant to the assessment year, this flat remained vacant. Therefore, the Assessing Officer chose to assess the income from house property by invoking the provisions of section 23(1)(a). Relying upon the appellate order in the case of M/s. Llardo Finance, the Assessing Officer determined the standard rent at 8.5 per cent on the total amount of Rs. 42,03,062. Though he has determined the standard rent as ALV at 8.5 per cent at Rs. 42,087, he adopted the ALV at Rs. 53,25,000 on the basis of monthly rent receivable/received by the assessee sister concern at Rs. 4,25,000 per month for the part period and at Rs. 4,50,000 per month for the balance period of the year for the other identical flat owned by it in the same building which was let out to High Commissioner of Canada in India Shri Peter Walker. Therefore, the Assessing Officer has adopted the ALV at Rs. 53,25,000 and determined the income from this property at Rs. 36,97,478 after deducting municipal taxes etc., and also allowing 30 per cent on ALV as deduction under section 24 of the Act. The assessee preferred an appeal before the CIT(A) and the CIT(A) restricted the ALV to 8.5 per cent of the investment cost and the ALV was reduced from Rs. 53,25,000 to Rs. 42,03,062. Now the assessee has preferred an appeal before the Tribunal.
2.1 The facts in other case i.e., Premshree Gems Pvt. Ltd. are also identical with slight difference in figures.
3. During the course of hearing, the learned counsel for the assessee has raised a preliminary objection to the mode of computation of ALV adopted by the Assessing Officer and the CIT(A). He has invited our attention to his letter dated 13-3-2006 filed before the Assessing Officer inviting his attention that the property in question remained vacant for the whole year, as such, the ALV is to be computed as per provisions of section 23(1)(c) of the Act. But, the Assessing Officer did not even examine the scope of clause (c) and he has restricted himself to the provisions of clauses (a) and (b) of section 23(1). Similar was the position before the CIT(A), but, none of the authorities have taken any pain to even consider the clause (c) of section 23(1). They have deliberated on clauses (a) and (b) of section 23(1) in the light of various judicial pronouncements.
4. The learned counsel for the assessee has further invited our attention to the amendments brought in sections 23 and 24 of the Act. Sections 23 and 24 were amended by the Finance Act, 2001 with effect from 1-4-2002. Prior to this amendment section 23 dealt with only 2 types of situations enshrined in clauses (a) and (b). As per clause (a) of section 23(1), the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. This clause was examined in series of judgments and it has been repeatedly held by the Apex Court and various High Courts that standard rent determined under the Rent Control Act shall be the rent on which property might reasonably be expected to let from year to year and the standard rent should be considered to determine the annual value. Clause (b) of sub-section (1) of section 23 deals with those type of situations where the property is let out and according to this clause annual value of any property shall be deemed to be, where the property is let and the annual rent received or receivable by the owner in respect thereof, is in excess of sum referred to in clause (a), the amount so received or receivable. Having considered both these clauses, it has been held by various High Courts that where the property is not let out standard rent determined/determinable under the Rent Control Act shall be deemed to be the annual value of the property and in case where the property is let out, the annual rent received or receivable if it is in excess of the aforesaid standard rent, the said received or receivable amount shall be the annual value of the property. If the rent received or receivable is lesser than the standard rent, then in that case, the standard rent would be deemed to be the annual value of the any property. In old provisions of section 23(1), no third situation was dealt with and it was confined only to two type of situations viz., one where the property is not let out and second, where the property is let out. While computing the income from house property, deductions stated in section 24 are to be allowed. According to clause (ix) of section 24, the vacancy allowance is to be allowed and according to this clause, the income chargeable under the head ‘Income from house property’ shall be computed after making the deduction 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 part, that portion of the annual value appropriate to any vacant part, which is proport-ionate to the period, during which such part is wholly unoccupied, be allowed. As per the old provisions of sections 23 and 24, the ALV computed under section 23 is to be reduced by a deduction claimed in section 24 in order to compute the income from house property. The deduction with regard to vacant portions or unoccupied property was generally called to be the vacancy allowance which was allowed to the assessee for computing the income from house property. After the amendment with effect from 1-4-2002 one more clause was inserted in sub-section (1) of section 23. Clauses (a) and (b) remained under statute with slight modifications and new clause (c) was inserted in sub-section (1). Clause (c) deals with the computation of ALV where the property or any part of the property remained vacant for the whole or any part of the previous year. With the insertion of clause (c) in sub-section (1), the clause (ix) of section 24(1) dealing with vacancy allowance was omitted. After this amendment clause 24 contains only few type of deductions.
5. The learned counsel for the assessee further contended that after the amendment, section 23 deals with computation of ALV in three type of situations. The first situation pertains the determination of ALV on the basis of sum for which the property might reasonably be expected to let from year to year. The second situation deals where the property or any part of property is let and the actual rent received or receivable by the owner in respect thereof is in excess of sum referred to in clause (a) the amount so received or receivable would be the ALV. The third situation deals 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 rent received or receivable by the owner in respect thereof is less than sum referred to in clause (a) the amount so received or receivable would be the ALV. In the instant case, since the property remained vacant for the whole year and no rent was received, the ALV should be computed at NIL as per clause (c) of sub-section 23(1) of the Act. The lower authorities do not examine this aspect and they have confined their deliberation on clauses (a) and ( b). Since all the three clauses are independent clauses and assessee falls within clause (c), the determination of ALV should be as per clause (c) of section 23(1).
6. The learned counsel for the assessee further contended that the property could not be let out in this year, because the assessee could not get a reasonable tenant during that year. | Since no sum was received or receivable by the assessee, there was no question of bringing any amount to tax as the ALV of the property was NIL. The learned counsel for the assessee has invited our attention to the definition of the word ‘receivable’ with reference to the Black’s Law Dictionary in which the word ‘receivable’ had been defined as awaiting receipt of payment. It has also been defined as subject to a call for payment or the amount earned, but, not yet receipt. The word ‘receivable’ was also explained by the Bombay High Court in the case of Commissioner Of Income-Tax v. J.K Investors (Bombay) Ltd. [2001] 248 ITR 7231 in which it has been held that under section 23(1)(b) the word ‘receivable’ denotes payment of annual rent to the assessee. However, if in a given year a portion of the actual annual rent is in arrears, it would still come within section 23(1)(b) and it is for this reason that the word ‘receivable’ must be read in the context of the word ‘received’ in section 23(1)(b). Their Lordship further held that in the light of above interpretations, notional interest could not form part of the actual rent as contemplated by section 23(1)(b) of the Act. The learned counsel for the assessee further contended that under no circumstances, the annual letting value determined by the Assessing Officer and the learned CIT(A) can be considered as receivable within the meaning of section 23(1)(b) or (c) of the Act. Whatever judgments were considered by the Assessing Officer and the CIT(A), they all pertains to old provisions of section 23. The amended provisions of section 23 were not considered in any of those cases. In the light of these facts, the ALV of this property should be computed at NIL.
7. The learned DR besides placing heavy reliance upon the Order of the lower authorities has submitted that provisions of clause (c) of section 23(1) can only be invoked when the property is let during the year and remained vacant for any part of the previous year. The impugned property was never let out, as such, provisions of clause (c) cannot be invoked. The ALV rather to be computed under clause (a) of section 23(1) which the Assessing Officer did. While determining the ALV the lower authorities have kept in mind the amended provisions though they have not discussed the clause (c) in their orders.
8. Having given a thoughtful consideration to the rival submissions and from careful perusal of record, we find that the Assessing Officer has computed the ALV of the impugned property as per clause (a) of section 23(1) and determined at 8.5 per cent of the cost of the property. The Assessing Officer as well as the CIT(A) did not examine the scope of clause (c) of sub-section 23(1) though the assessee has raised a plea since beginning. During the course of assessment proceedings, the assessee has taken a specific plea vide its letter dated 13-3-2006 before the Assessing Officer that the ALV should be computed as per provisions of clause 23(1)(c) of the Act and since the property remained vacant for the whole year, the annual value of the property to be taken as NIL, but, the Assessing Officer did not deliberate on this arguments of the assessee in his order. Through its letter dated 13-3-2006, the Assessing Officer has explained the three situations under which the ALV is to be computed under section 23(1). Similar was the position before the CIT(A), but, none of the lower authorities has examined this aspect while computing the ALV of the property and they have considered the old provisions of section 23(1).
9. Section 23(1) was amended and substituted by new provision with effect from 1-4-2002 by Finance Act, 2001. The impugned assessment year is 2003-04 and therefore the amended section of 23 is applicable to the present case and the amended section 23(1) contains three clauses dealing with different situations to compute the annual value of any property. These three clauses are independent clauses and deals three type of situations. Clauses (a) and (b) are almost similar to the old provisions with slight modifications and deal with two type of situations i.e., (1) determination of annual value for which property might reasonably be expected to let from year to year; (2) determination of annual value where the property is let and annual rent received or receivable is in excess of this sum referred to in clause (a). The old section 23(1) did not deal with that type of situation where the annual rent received or receivable is lower than the sum referred to in clause (a) on account property remained vacant during the whole or any part of the year. In order to remove this anomaly, the clause (c) was inserted in a new provision of section 23(1) and according to this clause (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 in such case, 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.
10. Having applied these three situations to the facts of the case, we are of the view that assessee’s case falls within third situation and annual value of the property is to be computed as per sub-clause (c) of the Act because the property remained vacant for the whole year. Since we have to deal with the third situation, we feel it proper to reproduce the clause (c) of sub-section 23 of the Act and the same is as under :
Section 23(1)(c )
"(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."
11. During the course of hearing, the revenue has raised dispute that this clause (c) can only be invoked in those cases where the property was let out in earlier years or in the present year. Whereas, according to assessee, the intention of letting out of property is to be seen for invoking clause (c) for computing the annual letting value of the property. It is irrelevant whether the property is/was let out.
12. Now the sole dispute is regarding the interpretation of the words ‘property is let’ in the above clause (c). One interpretation suggested by the learned DR is that the property should be actually let out in the relevant previous year. We find that this interpretation is not correct because as per this clause, the property can be vacant during whole of the relevant previous year. Hence, both these situations cannot co-exist that the property is actually let out also in the relevant previous year and the property in the same year is vacant also during whole of the same year. We, therefore, reject this contention of the learned DR of the revenue.
13. The second interpretation suggested by the learned DR is that the property should be actually let out during any time prior to the relevant previous year and than only, it can be said that the property is let and this clause will be applicable. Now, we examine this contention. First of all, we find that the tense of the verb used prior to the word ‘let’ is present tense and not past tense. It means that the provisions of above clause talk regarding the relevant previous year and not of any earlier period and if that be so, this contention of learned DR is also not acceptable. Secondly, we find that even if this contention of learned DR of the revenue is accepted, the provisions of this clause (c) cannot be made applicable in the first year, when the property is acquired and the same remained vacant because it could not be let out for want of tenant. This is so because there is no earlier period in that case prior to the start of the relevant previous year. This cannot be the unsaid intention of the Legislatures that the provisions of this clause are not be applied in the first year if the property remained vacant for whole of the first year in spite of efforts to let it out. Moreover, if this interpretation suggested by the learned DR is accepted, it will lead to disastrous result because in that event, if a property was let out in one year for any period, which can be even 1 month, than after that, such property will enjoy the benefit of this clause (c) for any number of years if the property remains vacant even if the same was not intended to be let out in the subsequent years including the relevant previous year.
14. In view of the above discussion, this interpretation can lead to a situation, where a person having several properties and all being let out for 1 month in any one year as discussed above and thereafter remained vacant with no intention to let out in subsequent years will enjoy the status of let property in all such subsequent years and will become eligible for benefits of this clause in all such subsequent years without any actual let out in those years and even without any intention to let out in those subsequent years. This cannot be the intention of Legislature.
15. We have seen that both the interpretations suggested by the learned DR of the revenue are not workable. Now, we have to see as to what can be the correct and workable interpretation of the words ‘property is let’ in the above clause (c). For this, we have to see and examine as to whether actual letting out is must for a property to fall within the purview of this clause by satisfying the requirement of words ‘property is let’ present in this clause. In this connection, we have noted above that actual let out even for a day in the present year and the property remaining vacant for whole of the present year cannot co-exist. This takes us to the alternative that we should examine as to whether the property was actually let out for some period in past i.e., prior to start of the relevant previous year. In this context, first we examine as to whether to satisfy the words ‘property is let’, actual let out for some period is necessary. At this juncture, we examine other sub-sections of section 23 and we find that sub-section (3) of section 23 reads as under:—
"(3) The provisions of sub-section (2) shall not apply—
(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."
16. From the above, we find that here, the Legislatures in their wisdom have used the words ‘house is actually let’. This shows us that the words ‘property is let’ cannot mean actual letting out of the property because had it been so, there was no need to use the word ‘actually’ in sub-section (3) of the same section 23. Regarding the scope of referring to actual let out in preceding period, we find no force in the contention of the DR, as the Legislature has used the present tense. Even if we interpret it so, it may lead to undesirable result because in some cases, if the owner has let out a property for one month or for even one day, that property will acquire the status of let out property for the purpose of this clause for the entire life of the property even without any intention to let it out in the relevant year. Not only that, even if the property was let out at any point of time even by any previous owner, it can be claimed that the property is let out property because the clause talks about the property and not about the present owner and since the property was let out in past, it is a let out property although, the present owner never intended to let out the same. In our considered opinion, it is not at all relevant as to whether the property was let out in past or not. According to us, these words do not talk of actual let out also but talk about the intention to let out. If the property is held by the owner for letting out and efforts were made to let it out, that property is covered by this clause and this requirement has to be satisfied in each year that the property was being held to let out but remained vacant for whole or part of the year. We feel that the words ‘property is let’ are used in this clause to take out those properties from the ambit of the clause in which property are held by the owner for self-occupation i.e., self-occupied property (i.e. SOP) because even income on account of SOP, excluding one such SOP of which annual value is to be adopted at nil, is also to be computed under this head as per clause (a) of section 23(1) if we see the combined reading of sub-sections (2) and (4) of section 23. One thing is more important because we find that where the Legislatures have considered that actual letting out is required, they have used the words ‘house is actually let’. This can be seen in sub-section (3) of same section 23. But in clause (c) above, ‘actually let’ words are not used and this also shows that meaning and interpretation of the words ‘property is let’ cannot be ‘property actually let out’. In our opinion, it talks of properties, which are held for letting out having intention to let out in the relevant year coupled with efforts made for letting it out. If these conditions are satisfied, it has to be held that the property is let and the same will fall within the purview of this clause.
17. In view of this interpretation of the words ‘property is let’ in the above clause (c ), now we examine the facts of the present case. In the present case, the assessee is a company. The company can hold a property either to use it for its own business or to let out. In the present case, there was no business activity and there was no intention to use the same for own business. Even if that is there, in that event also, no income can be assessed under the head "Income from house property" in view of the exclusion in section 22. The other possible use can be to let out.
18. We have carefully examined the material placed on record and we find from the memorandum of association that the assessee is entitled to purchase the property for its let out and to earn rental income. Copies of resolutions of Board of Directors are also placed before us in both the cases where from it is evident that one of the Director was authorized to take necessary steps to let out the property in question. They have also fixed the monthly rent and the security deposits of both the properties. Consequent to the resolutions, the assessee has approached to various Estate and Finance Consultants for letting out the properties and the request was also duly acknowledged by the Estate and Finance Consultants. The series of correspondence are placed before us to demonstrate the efforts made by the assessee for letting out of its properties, but, unfortunately during the year under appeal, assessee could not get the suitable tenant on account of hefty rent and security deposits. The correspondence exchanged between the assessee and the different property consultants are placed on record at page Nos. 31 to 100. From this correspondence, it is, noticed that the assessee has approached various property consultants to let out its properties and during the year, it could not get a suitable tenant. From a careful perusal of these documents, it has become evident that during the whole year, assessee made its continuous efforts to let out the properties and under these circumstances, this property can be called to be let out property in terms of our observations in foregoing paras. Since the property has been held to be let out property, its annual letting value can only be worked out as per sub-clause (c) of section 23(1) of the I.T. Act and according to this clause, the rent received or receivable during the year is NIL and as such the same be taken as the annual value of the property in order to compute the income from house property. We, therefore, order accordingly.
19. In the result, appeals of the assessee are allowed.
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